Electronic Arts (EA) Goes Private for $55 Billion: What Gaming Stocks to Buy Now

Last Friday afternoon, shares of video-game publisher Electronic Arts (EA) spiked 15%...

Rumors emerged that the company could be taken private at a $50 billion valuation – about a 22% premium to the company's market cap.

Now, as of Monday, the deal has been confirmed. EA is set to go private at a price tag of $55 billion – or about $210 per share.

The buyers are Saudi Arabia's Public Investment Fund ("PIF"), private equity company Silver Lake, and investment firm Affinity Partners (founded by President Donald Trump's son-in-law Jared Kushner).

The deal is expected to close in the first quarter of EA's 2027 fiscal year, which ends in June 2027.

EA's stock has jumped another 4.5% on the news today, hitting a fresh all-time high.

But is the company still a buy?

At $203 per share, EA is already close to its take-out price. And with nearly two years until the deal is expected to close, a remaining 4% gain may not be worth the wait.

But that doesn't mean you can't find investment opportunities in other corners of the video-game space. The key is to know what makes a gaming company great.

First, let's dive into EA's business...

Why $55 Billion for Electronic Arts (EA) Stock Is a Steal

Electronic Arts has a fantastic business model.

It's one of the top video-game publishers in the world. It owns long-established and world-class game franchises like The Sims, Madden NFL football, and FIFA (now EA Sports FC) soccer.

EA releases many of these big-name games annually. That keeps players coming back and buying year after year.

These assets alone have given EA healthy margins and steady revenue growth. But it has also benefited from the recent shift to digital downloads.

As the Stansberry's Investment Advisory team wrote all the way back in 2011...

Technology will also allow these publishers to adopt higher-margin distribution models, where players are able to pay the publisher directly, buying the game through subscription, instead of through a retail outlet. These trends are why I'm extremely bullish on the long-term future of the video-game business.

That's exactly how things have played out. Today, players can buy games online and download them straight to their consoles.

As recently as 2023, nearly 95% of all video-game sales were digital downloads. That has led to the downfall of retailers like GameStop (GME) that sold physical games. But it has allowed EA and other video-game publishers to expand their margins.

Yes, the cost of creating games is high... But game publishers no longer need to invest in facilities to make physical discs. They can sell more units online without increasing their costs. Not only that, but game companies can now make money with digital add-ons.

In fact, EA's biggest source of revenue isn't games at all...

Last year, EA's game downloads made $1.5 billion in net revenue. Meanwhile, its "live services" segment brought in $5.5 billion. That segment includes in-game purchases, subscription offerings, and extra game content.

All of this makes EA extremely capital efficient.

Over the past 12 months, EA has generated $1.75 billion in free cash flow ("FCF") against $7.5 billion in revenue. That's a FCF margin (FCF divided by revenue) of about 23%.

In other words, for every dollar in sales EA brings in, $0.23 trickles down to FCF. The business can use that money to reinvest in the business or reward shareholders.

At 23%, EA's FCF margin handily beats the S&P 500 Index's average FCF margin of 17%.

So it makes sense that EA wins a grade of A for capital efficiency on our Stansberry Score... And with a B grade for valuation, our system thinks that the parties taking the company private at $55 billion are getting a good deal.

(EA has been a holding in the Stansberry's Investment Advisory model portfolio since June 2019. After Friday's surge, subscribers who followed that advice have now doubled their investment as I write, including dividends.)

The Biggest Acquisitions in the Gaming Industry: Where EA Fits In

At a price tag of $55 billion, folks may be surprised to hear EA wouldn't be the largest acquisition in the video-game space.

In January 2022, Microsoft (MSFT) – which owns the Xbox gaming console – agreed to acquire Activision Blizzard for $69 billion. Like EA, Activision was one of the largest video-game makers in the world.

It boasted popular names like military-operations franchise Call of Duty, fantasy role-playing game series World of Warcraft, and puzzle matching game Candy Crush Saga. And it generated plenty of cash as a result – just like EA.

And these companies have a history of buying up smaller video-game studios and rolling them into their larger platforms. EA has even done this, buying up Respawn – the studio that produced the popular Apex Legends game.

Today, gamers have an abundance of choices. The market is incredibly competitive. That's why beloved franchises are so critical to a company's success... And it's why we've seen a scramble in recent years to acquire the best game makers, with the best titles.

Now, EA has become the latest prize.

Is the Last Standing Video-Game Stock a Buy Today?

With two years until the expected close of EA's buyout, it's hard to recommend buying this stock and collecting the last 4% of the deal premium today (even if EA is one of the top 50 stocks our system tracks).

But you can find other chances to profit in the video-game industry...

Take-Two Interactive (TTWO) is a perfect example.

Like EA, Take-Two has a portfolio of well-known and popular video-game franchises. It owns the studios responsible for popular games like NBA 2K, Red Dead Redemption, and the Grand Theft Auto ("GTA") franchises.

And the upcoming release of its latest Grand Theft Auto game in 2026 could be the next big catalyst for the stock. As my colleague Tyler Jarmin wrote in Stock Market Trends a few months back, GTA VI could be a cash cow...

In its first week alone, GTA V generated $1 billion in sales. Current estimates for GTA VI have the game hitting the $1 billion mark in preorders alone.

Early estimates have the game generating more than $3 billion in revenue in its first year, according to DFC Intelligence, the oldest market analyst firm covering the video-game industry.

So, Take-Two has successes on the horizon. But let's look at where the company stands right now...

Take-Two doesn't earn a Stansberry Score as high as EA's. But it still has a solid score of 63 – an overall grade of B. And with a B for valuation, our Stansberry Score still believes that the stock could be a good buy today.

Take-Two could also benefit from being one of the last remaining video-game pure-plays after EA goes private...

EA, Activision Blizzard, and Take-Two were the "big three" in the industry just a few years ago. Now, Take-Two will be the only one left for folks to invest in.

But not every video-game stock is worth considering today. For example, take Roblox (RBLX)...

Roblox is a popular online-gaming platform with tens of millions of users. And it has a large user base of teenagers and preteens. In fact, Roblox calls itself "one of the top online entertainment platforms for audiences under the age of 18 based on average monthly visits and time spent."

Roblox makes its money from "microtransactions" – small purchases inside of games that allow customers to buy new cosmetics and characters.

But despite its popularity with younger audiences (the cornerstone of the video-game industry), its Stansberry Score shows this company is in a weaker position...

Roblox earns an overall score of 58, for a grade of C. The bright spot is the company's financials, which get a grade of B. But our system gives it a C for both its capital efficiency and valuation.

So our Stansberry Score is telling us this company isn't a great investment yet. For now, you can find much better options out there, like Take-Two.

Where Our Stansberry Score Sees Other Opportunities

Stansberry's Investment Advisory editor Whitney Tilson has developed a new investing system based off the Stansberry Score – called the New Engine of Wealth ("N.E.W.") System.

Put simply, the N.E.W. system uses our Stansberry Score to identify the top 20 stocks on the market... stocks that meet our strict capital-efficiency, financial, and valuation criteria. Then it uses advanced simulations to assemble the optimal portfolio.

Whitney recently released a special, free documentary to give a closer look at the N.E.W. system and show how it would've outperformed many of the largest asset classes over the past few years.

You can get all the information right here.

Good investing,

Nick Koziol