EA gets a boost from FIFA and Madden players crowding into a new way to play games (EA)

pulse

January 31, 2018 6:05 PM

Shares of Electronic Arts climbed on Wednesday after the company reported third-quarter earnings that beat expectations.

Shares of
The company's live services segment continues to accelerate at a high rate, a Credit Suisse analyst said.

Shares of Electronic Arts jumped 8% on Wednesday morning to $128.11 per share after the company posted an earnings beat and raised its forward guidance. But the main highlight of the report was the acceleration of its live game services segment, largely driven by "FIFA" and "Madden" users, a Credit Suisse analyst noted.

The live services segment allows users to subscribe to a version of a game that updates automatically and runs as a 365-day service instead of purchasing new copies each year. Revenue from live services has increased 39%, compared to 26% a year ago, according to Credit Suisse analyst Stephen Ju.

According to Ju, growth in the live services segment was primarily due to the popularity of "FIFA's Ultimate Team," which allows users to build their own team and compete in single player or online modes, and "Madden's" recent addition of a single-player campaign mode, as well as the growing adoption of its own "Ultimate Team."

The live services segment drives revenue through ongoing purchases instead of relying on consumers to buy new versions of games.

"The trade-off for better-than-expected recurring revenue in Live Services versus unit volume sales from a new release is one that we will gladly make as it creates a greater upward bias to our long-term estimates," Ju said.

Ju maintained an Outperform rating on the company and raised the price target to $143 per share, compared to the previous target of $131 per share.

He adds that there are other beneficial factors that could boost EA's stock, including the further shift to digital, the widespread adoption of microtransactions as driving monetization, and the expansion of its addressable market to a global online user base.

EA's stock was up 16.81% for the year.