EA Stock Forecast: UEFA Euro 2016 and Mobile Gaming are Long-term Tailwinds

ayushThe article was written by Ayush Singh – Senior Analyst at I Know First

 

 

EA Stock Forecast

  • electronic artsFIFA franchise is Electronic Arts’ cash cow and should witness a strong boost in sales this year.
  • Due to the cyclical nature of FIFA, sales will rise due to the UEFA Euro 2016 tournament.
  • Growing presence in the mobile gaming industry is a tailwind.
  • EA should continue beating the market in the long-term.

Electronic Arts (EA) seems to have a habit of beating the market. The market ended 2015 in the red but EA was up roughly 50% for the year. Even in 2016, EA is off to a decent start as the stock is down only about 2% which is impressive in the current selloff.

While many big-name tech stocks have lost considerable value this year, EA has managed to sustain its outperformance. EA’s past performance has been good, but investors are wondering if the stock can continue its long-term upward trajectory in 2016 amid the market correction. Given the current market sentiment, it is possible that EA may struggle at least in the short-term. However, I think the company’s long-term prospects look good. Investors who believe that the correction is over can start accumulating the stock at current levels.

UEFA European Championship will boost FIFA sales

The FIFA franchise is EA’s bread and butter as it accounts for almost 30% of the company’s revenue. The sales of FIFA have grown tremendously over the years and have been a huge driving factor for EA. However, as noted by an article on Forbes, FIFA sales are cyclical and tend to be higher when the launch coincides with a major international tournament like the FIFA World Cup or the UEFA EURO Cup.

Soccer may be the world’s most popular sport, but it is still growing. Hundreds of millions of viewers tune in to watch the international tournaments, and since it adds to the hype, sales of FIFA and Konami’s PES increase. The Forbes article states that FIFA sales jumped 40% in 2012 due to the UEFA EURO only to fall 14% in 2013. Similarly, the unit sales of FIFA 2015 eclipsed its predecessors by 27%, obviously due to the excitement of the FIFA World Cup, however the sales of FIFA 2016 have failed to beat its predecessor.

Given the cyclical nature of FIFA’s unit sales, I think investors can expect a big boost in sales this year due to the UEFA EURO 2016 in France. Most of the big teams have qualified for the tournament and the hype surrounding the tournament will be huge as always. This should boost FIFA sales, which is good for investors as the franchise accounts for a large portion of EA’s revenue.

Growing presence in the mobile gaming industry

The mobile gaming industry is growing at a rapid pace. According to research from intelligence firm Digi-Capital, mobile gaming industry was estimated to reach $88 billion in value in 2015. The firm is also forecasting that the sector will continue growing at a CAGR of 8% from 2016 and will surpass the $110 billion mark by 2018.

EA Stock Forecast

(Source: Digi-Capital)

Due to the fragmented nature of the mobile gaming industry, I have always argued that a single company will not be able to dominate the sector. Due to the lack of significant entry barriers, it is impossible for any company to dominate the sector. That being said, I do think it is necessary for gaming company’s like EA to grow their presence in the sector.

EA generates the majority of its revenue from PC and console games, and I expect this trend to continue for the long-term. However, due to the growth of the mobile gaming industry, it is also important for gaming companies to diversify into mobile.

Activision recently paid $6 billion to buyout King Digital. EA, on the other hand, has followed a smarter approach and is developing mobile games instead of buying out companies. EA has slowly diversified into mobile games, and it now accounted for roughly 10% of the company’s revenue as per the latest reported quarter.

EA has ported many of its successful franchises to smartphones, and this tactic has worked well for the company. Given the growth of the mobile gaming industry, I think EA is well positioned to benefit from it.

Conclusion

FIFA is EA’s biggest franchises, and it should witness a big boost this year. Given the cyclical nature of FIFA sales, I think the upcoming Euro 2016 tournament will provide a big sales boost. While EA may struggle in the short-term due to the negative market sentiment and the slowdown in growth of FIFA 16, EA’s long-term future looks bright. Moreover, the company’s increasing presence in the mobile gaming industry is another tailwind as the industry is growing at a rapid clip.

My long-term bullish view on EA is echoed by the algorithmic forecasts of I Know First. I Know First uses an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies.  Dr. Roitman, who created the algorithm, created rules for entry for a stock such as Apple or EA. Using this trading strategy, an investor should buy a stock if the last 5 signal strength’s average is positive and if the last closing price is above the 5-day moving average price. When both of these conditions are met, it is a good time to initiate a position in the stock.

The algorithm generates a forecast with a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts. The middle number indicates strength and direction, not a price target or percentage gain/loss. The bottom figure, the predictability, signifies a confidence level.

EA Stock Forecast

As you can see from the forecast above, the green 39.99 and 58.18 3 months and 1-year forecasts from I Know First indicates that the stock has upside potential.

I Know First Algorithm previously predicted EA stock movement in this Tech Forecast from the 12th of October 2015.  The bullish signal of Ea was 0.51 and the predictability 0.26 wich brought returns of 10.18% during the 1 month horizon. The overall Tech package brought returns of 8.71% for the long position and 3.21% for the short both outperforming the S&P500 of a mere 1.54%.

Best Stocks To Buy

To get your daily forecast for EA sign up here

 


premium