Max Grigoryev
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Max Grigoryev in Fundamentality,

EA: more than just a game developer

Electronic Arts, EA, I think that it is more than just two letter for everybody. EA's stock price increased 58% over the last year, more than 350% over the last three years. For me such growth is really impressive. 

The company announced its Q3 results last week. These results have multidirectional trends and I am not sure that the stock can perform another 300% of growth over the next three years:

  • Operating metrics
    • MAU, monthly active users, decreased to 150M for three months ended Sep 2015 compared to 155M for three months ended Sep 2014;
    • An average revenue per one monthly active user is going down: $5.43 as of Sep 2014 compared to $6.38 as of Sep 2015;
    • Full game downloads number dropped down by 5% for three months ended Sep 2015 compared to three months ended Sep 2014;
    • An average revenue per downloads dropped down as well from $2.19 to $1.70;
  • Financial metrics
    • Total net revenue for six months ended Sep 2015 decreased by 8%. However, this decrease was due to revenue deferral, total digital revenue grew up 8%;
    • Revenue received from the extra content contributes almost 45% to the total revenue, and other important fact, it grew up 24% for six months ended Sep 2015 compared to six months ended Sep 2014;
    • Cost of revenue decreased as % of revenue from 34% for six months ended Sep 2014 to 28% as of Sep 2015 and this is a very important step to increase the marginality of the company;

Basically, the EA stock doesn't look promising, however the company has the contracts with FIFA, Madden NFL and wholly-owned IP rights for such games as Battlefield, Mass Affect and Dragon Age. The gaming industry is always under the pressure of new technological developments and augmented reality tools, but I think that EA is like a symbol of the industry and will keep the leasing positions for the next several years. 

What do you think about the EA stock? Do you expect it to grow?