Electronic Arts Has Game But Can Share Price Move Higher?

Key Points

• Electronic Arts popped following Q4 results, but gains are capped at a critical level. 
• Analysts raised their price targets and may drive the stock higher. 
• Strength in the FIFA franchise is expected to translate to a new title later this year. 

Electronic Arts NASDAQ: EA is the leading sports video game maker on the market with the #1 and #2 games worldwide and 4 in the top 10, but that may not be enough to get the shares moving higher. The price action popped following the Q4 results and guidance, but the action since then is less than bullish. There is a risk that resistance at the top of a price gap that opened in February will continue to cap gains. That level is near $130 and has been confirmed as resistance more than once. 

The offsetting factor is the analysts. The analysts began to boost their price targets before the Q4 release and have continued to do so afterward. Marketbeat.com is tracking 6 new targets, all increases, with 5 well above the $136 consensus estimate. The consensus estimate is down compared to last year but is firming near term and may help lift the market.

A move to $136 would put the stock above near-term resistance and at the mid-point of a larger trading range. Because 5 of the new targets are in the range of $144 to $145, it is possible this stock could rise to its previous record levels. 

Electronic Arts Reports Record Bookings, Guides Above Market 

Electronic Arts results and outlook catalyzed higher share prices and should help sustain a rally despite the post-release action. The company reported $1.87 billion in revenue for a gain of 2.7%, compounded by increased cash flow and favorable bookings figures. The company reports bookings rose to $1.95 billion or 11.4% compared to last year on strength in the FIFA franchise. This is 1250 basis points better than expected and underpinning the Q1 guidance. EA Sports FIFA 23 bookings grew by 32% and have already topped FIFA 22 lifetime sales in the first 6 months of release. 

There is a risk that bookings and revenue will fall due to the soon-to-expire FIFA license, but EA is coming out with another title called EA FC. The details are yet to be released, but players can rest assured it will live up to EA’s history with the sport. The website says more details will be available in July, which investors should put on their calendar as a potential turning point or catalyst for the market. 

The GAAP earnings came in negative and well below analysts' targets, but the numbers are not comparable due to restructuring costs and a higher tax provision. The takeaway is that operating cash flow is up significantly from last year and allows for capital returns. Regarding the guidance, the company expects Q2 revenue and earnings to be well above consensus targets. Based on the strength of bookings, assuming that strength continues, the Q1 results may point to strength in Q2 and for the year. 

Electronic Arts Capital Returns On Track

Electronic Arts isn’t a high-yielding stock but the 0.6% yield looks safe. The company is paying out 13% of the earnings consensus for F24; the Q1 guidance was well above it. This is compounded by share repurchases which totaled $325 million or 2.7 million shares in the quarter.

The price action in EA shares is more mixed than not. The market is forming a large red candle confirming resistance, but support is also evident at the short-term moving average. If the market can maintain support, it may work through resistance at the $130 level and move up to higher price points. If not, this stock will remain range bound with a chance of retesting support at $117.50 or lower.