Online game maker Digital Arts (NASDAQ: EA) reported their fiscal This autumn earnings this week, they usually greater than justified the stubbornness seen of their shares in current weeks. Whereas fairness markets have bought off relentlessly throughout what is popping out to be one of many worst begins to a 12 months in residing reminiscence, shares of EA are ‘solely’ down about 20% from final 12 months’s excessive.
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If this was final 12 months, such efficiency can be catastrophic, however within the context of 2022 it’s fairly enticing actually. The S&P 500 index is down about the identical, whereas the tech-heavy NASDAQ index is down near 30% from its all time excessive. Taking a look at particular person names, Netflix (NASDAQ: NFLX) shares are down 75%, Fb (NASDAQ: FB) are down 50%, and Amazon (NASDAQ: AMZN) are down greater than 40%. You’d be forgiven for pondering that possibly, simply possibly, online game shares are changing gold as the normal protected haven for fairness buyers.
Let’s check out their numbers and see what’s behind the bull’s stubbornness.
Stable Report
For starters, the corporate’s EPS was a wholesome $0.80 and nicely forward of what analysts have been anticipating. Income for the quarter was just a little delicate on the consensus, however nonetheless up greater than 17% on the 12 months. Buyers additionally realized that the EA participant community grew 16% 12 months on 12 months to greater than 580 million distinctive energetic accounts. These are admirable development numbers, significantly as trade numbers haven’t been nice this 12 months up to now.
Whereas online game gross sales boomed throughout COVID, due to extra individuals than ever earlier than being locked up at dwelling, they’ve been trending down since late final 12 months. Contemporary numbers this week confirmed that shopper videogame spending fell 8% within the first quarter in comparison with the identical interval in 2021, an “indicator of the comedown from mid-pandemic highs as some shopper {dollars} discovered their manner again to various experiences, and the trade continued to battle to get new consoles into consumers’ palms.”
So when EA continues to be in a position to push out a report like this, it’s simple to see why Wall Road nonetheless very a lot likes the reduce of their jib. Andrew Wilson, CEO of EA, spoke bullishly to the long run, saying that “FY22 was a document 12 months, with tons of of tens of millions of gamers all over the world becoming a member of in our video games to play, watch, and create with each other. With superb video games, constructed round highly effective IP, made by extremely gifted groups, and excellent engagement in our stay providers, FY23 is ready to be a 12 months of innovation and development for Digital Arts.”
The corporate’s CFO, Chris Suh, echoed the sentiment when he remarked that “we completed the 12 months with one other sturdy quarter of income and revenue development, pushed by our stay providers enterprise which was 85% of our web bookings in This autumn. We’ve got a robust basis of deeply engaged gamers, wealthy IP, and a resilient enterprise mannequin, which we’ll proceed to spend money on to ship development in FY23 and past.”
Getting Concerned
Along with all of this, administration gave a bullish sign to buyers this week once they upped the corporate’s dividend by 12%. This is among the most bullish alerts buyers can get, and tells us that administration could be very assured in regards to the firm’s prospects within the months forward. The sturdy report and dividend hike didn’t go unnoticed both. MoffettNathanson upgraded their score on EA inventory to Purchase from Impartial, and set its value goal to $141. From the $120 that shares closed at on Thursday, this nonetheless suggests an upside of some 16% available. The staff over at Jefferies reiterated their Purchase score, whereas noting their shock at a rise in full-year steerage amid the sector pressures proper now.
Wedbush stored its Outperform score as nicely, however trimmed its goal to $164. The quarter was in keeping with his expectations, analyst Michael Pachter says, however “we anticipate development within the foreseeable future pushed by price self-discipline, digital gross sales development, a number of key franchises, and a number of current acquisitions.” Credit score Suisse made an identical transfer, trimming its value goal to $162, suggesting there’s 30% upside available from present ranges.
It’s a troublesome time to be an fairness investor proper now, however EA might simply be one of many higher locations to park your money proper now.
