A Pandemic Darling That Doesn't Need Lockdowns to Thrive
For many technology businesses, COVID-19 was a huge boost...
Networking technology, video conferencing, and electronic devices were all in high demand last year as people suddenly needed to work from home. Zoom Video Communications (ZOOM) and DocuSign (DOCU) are among the stocks that famously soared throughout 2020.
Of course, many of these stocks have retreated off their highs as the euphoria fades. Today, we're highlighting a company that got a boost from the pandemic. But unlike some of the other lockdown darlings, today's company continues building off its strength...
Electronic Arts (Nasdaq: EA) is one of the top video-game publishers in the world.
Central to its business is a popular set of sports games – which includes well-known franchises like Madden (football) and FIFA (soccer).
EA comes out with a new version of these games every year, and its loyal customer base keeps coming back for more. Each new version of EA's FIFA game is at or near the top of the list of that year's bestsellers. With strong, steady demand year after year, these games produce loads of free cash flow for EA.
But EA isn't limited to sports games... Its portfolio also boasts popular titles like Star Wars Jedi: Fallen Order and Apex Legends.
When we last covered Electronic Arts last June, we told you that the COVID-19 tailwinds were just the beginning of its rise. Throughout the pandemic, EA's business surged, with revenue nearly doubling in the early months of COVID-19 lockdowns.
EA CEO Andrew Wilson said the company saw "unprecedented" growth in the quarter, including "tens of millions" of new customers as people looked for ways to entertain themselves indoors.
It helps that EA has ditched the "old" way of selling games... The company no longer focuses on selling games to middlemen like GameStop (GME), Target (TGT), and Walmart (WMT). Instead, it sells its games directly to customers through their gaming consoles.
This makes buying games extremely easy for customers – they can quickly purchase any of EA's offerings at home, directly over the Internet. This approach also means higher margins for EA.
Software is extremely scalable. It doesn't need factories or manufacturing facilities. It can sell as many games as it wants for little to no incremental cost.
And it's selling a lot of them right now... Even as restrictions ease and folks' lives return to some sort of "normal," EA's pandemic boost hasn't faded. Just take a look at its recent earnings report...
Both earnings and net bookings came in well above estimates for the company's first quarter, which ended in June. Net bookings are a sales metric for EA that includes both physical and digital game sales.
And even stronger demand is yet to come...
Football and soccer seasons are just around the corner. That means gamers are going to have to go out and get the new versions of the game in the coming weeks and months.
As a result of the strong performance, EA raised its outlook for the 2022 fiscal year (which ends March 31, 2022). The company now sees full-year earnings per share ("EPS") of about $6.40, versus the previous forecast of $6.25. Wall Street thinks it's going to do even better... projecting EA's EPS at $6.46.
The company also raised its forecast for net bookings from $7.3 billion to $7.4 billion, bringing it in line with the Wall Street estimate. That would be an incredible 20% growth even compared with 2020's pandemic-fueled growth. And it's a testament to EA's world-class game portfolio.
Demand for EA's games isn't going anywhere... The company got a huge boost from the pandemic, and it's building off that strength to come out of the pandemic in an even better position. That sets EA shares up for more long-term gains.
Sometimes investing is simple.