video game producer electronic arts (EA 3.57%) has performed well for investors in 2022. The stock has significantly outperformed the S&P 500 year-to-date index, down just 4% compared to the index’s drop of 13%.
The video game industry is attractive to investors due to the ability of the most popular games to keep players entertained and spend money on content upgrades for long periods of time. EA’s best games offer exactly that in a challenging economic environment.
Here are three reasons to consider buying the stock now.
1. Growth of live services
The most important indicator of how well a video game company keeps gamers engaged with certain titles is the money they spend on additional content while playing the game. Companies use different terms for in-game spending, but EA calls it live services.
Live services refer to what gaming has become in the gaming industry. Games are no longer unique selling opportunities; They are services throughout the year. Gamers stick with the same game for months at a time, playing online with friends, and that means lucrative sales opportunities for digitally delivered content upgrades.
EA includes various items in its Live Services revenue, such as subscriptions, add-on content, and other revenue earned outside of the base games. The additional content portion of live services, such as in-game spending, has nearly doubled to $3.9 billion over the last four years, according to Statista.
EA expects total bookings for FY2023 to grow 6% year-over-year to $8 billion, so additional content growth will be a big factor.
EA fifa Y apex legends games are key contributors to additional content sales that still have room to grow. The interest in football worldwide has been a key factor in driving fifa. The best-selling soccer title just completed a record first quarter in Asia, and management is looking to build on that momentum with the upcoming release of fifa23.
two. apex legends It is on fire
EA’s player network grew to nearly 600 million players in the first fiscal quarter of 2023. The growth stands out against the decline in monthly active users at the rival game producer. Activision Blizzardwhich has seen its player base decline to 361 million from 408 million in the same quarter last year.
apex legends It’s been tough competition for Activision Obligations During the past year. In the second quarter, Activision reported a decline in in-game bookings, which the company attributed to lower spending on Call of Duty: Vanguard compared to the previous version of the series.
Meanwhile Apex legends has seen steady growth since its launch in early 2019. The number of viewers who watch others play on AmazonTwitch’s streaming platform has grown from fewer than 20,000 in 2019 to almost 100,000 this year, according to Statista.
The growing viewership on Twitch reflects the game’s contribution to EA’s top line. apex legends posted double-digit growth in net bookings last quarter, and EA just released a mobile version of the game, which should keep interest rising.
3. The best value in games
EA has the perfect blend of sports, action shooters, and lifestyle games (eg. The Sims) to offer consistent returns to investors. The company seems to have established a good rhythm of releasing frequent content updates for its games that encourages gamers to keep coming back for more. This gives EA recurring revenue streams that are particularly valuable during tough economic times.
The stock is trading at a modest valuation of just 17 times future earnings estimates. That’s a discount to the average S&P 500 price-earnings multiple of 21. The relatively lower valuation makes EA the best value among the top video game stocks right now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has stalls at Amazon. The Motley Fool has positions and recommends Activision Blizzard and Amazon. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.
