Why I'm back in $EA
Why I bought $EA today:
- So many players in the community are excited for Battlefield 2042 with the beta coming out next week and the game releasing in November. Check out the likes, views, and comments from the videos on their YouTube channel.
- The main story for this year is Battlefield, but Apex Legends will also be a nice story as well. Last fiscal year, revenue was $600 million and management guided revenue to grow over 20% despite last year's tough comps including extraordinary levels of engagement as players spent more time at home as a result of the COVID-19 pandemic. My research shows growth will somehow be even better because of some players leaving WarZone's cheater plague to go to Apex
- I don't see risks impacting the current market such as supply chain disruptions (most of the games are digitally delivered), labor shortages (zero concerns mentioned during the earnings calls), and interest rates (relatively cheap tech stock trading at 19.8x EBITDA)
- My price target is $168 (26% upside; 25x my/management's guidance for their FY '22 EBITDA). Stock is currently trading at 19.8x.
- That price target could go up to $200 (50% upside) with either the multiple going to 30x, EBITDA going up by $300m, or anything in between that combination to account for Battlefield & Apex execution.
- Management's is generally conservative and kind of makes sense since this is the first EA traditional shooter since Battlefield 1 (back in 2016) that will perform well.
- People can be excited for a game and it ends up being a buggy mess like CyberPunk.
- Rest of the games can suck even after the bugs are fixed. Their sports games do not have a positive impression with the community (yet EA has monetized those games very well in the past +20 years) and like I mentioned earlier they haven't had a successful traditional (Battlefront, Battlefield, etc.) shooter since 2016
- EA doesn't get a lot of revenue from China right now, but there was an expectation that video game publishers like EA would have entered these markets and get solid growth in the future.
- Some bears will say that a lot of people played video games last year because of COVID and once it's over people will stop playing. I'm not seeing any deceleration. Twitch engagement is still high, EA is guiding for revenue to grow over 20% this year, and a lot of people are excited for Battlefield.