Electronic Arts Inc. (NASDAQ:EA) enjoyed a strong launch of its EA Sports FC 24 video game, pulling in 11.3 million players globally during the first week.
It comes not long after the company’s rebranding of the soccer simulation game after ditching its long-standing license with FIFA and branching out on its own as EA Sports FC.
According to analysts at Bank of America (BofA) Securities, this success after a “sparse launch pipeline” earlier in 2023 merits a ‘Buy’ rating for the stock. They also raised their price objective to $150 from $145.
With investors cautious about arguably the biggest rebranding in the history of video games, the analysts said the balance of risk looks attractive again.
Firstly, the company’s relative valuation is near a five-year trough. Secondly, early stats from the FC 24 launch suggest upside to Street estimates and guidance. Finally, there could be a string of upward revisions as EA benefits from above trend growth in the PC/console game market in 2024 and beyond, the analysts said.
“We expect results & guidance to dispel investor skepticism over SPORTS FC's ability to grow Y/Y in FY24,” the analysts wrote.
“Early launch stats reported by EA support our hypothesis: through its first week of launch, FC 24 player count is up ~10% vs FIFA 23; the number of players in Early Access grew ~25% Y/Y, suggesting an increase in Ultimate Edition uptake. We raise FQ2 and FY24 Bookings estimates above the high end of guidance.”
The analysts expect the PC/console software market to grow above trend in 2024 and beyond because the maturation of the ninth generation (Gen 9) of video game consoles implies that gamers can shift $4 billion to $6 billion of annual budget back to game software.
“EA's largest franchises are well-positioned to gain wallet share as it expands modalities of consumption; research has shown that players' in-game spending is highly correlated with the amount of time spent inside a game's ecosystem,” they added.
Justifying their higher price target for EA, the analysts said they expect the company’s valuation discount versus its peers to close as more evidence of FC strength solidifies the floor on estimates.
Electronic Arts’ shares were up 3.2% at $128.71 in early afternoon trade in New York.
Contact the author at stephen.gunnion@proactiveinvestors.com