Successful Gaming Conglomerate: Electronic Arts
The video game industry is poised for significant growth, according to a recent report by consultancy PwC. The total revenue of the industry is forecasted to grow from $224 billion in 2024 to nearly $300 billion by 2028, positioning gaming as a major growth sector within entertainment and media amid economic uncertainties.
This growth outpaces other entertainment sectors such as music and movies, with gaming expected to remain a bright spot even with cost-of-living pressures impacting other entertainment revenues. PwC’s broader Global Entertainment & Media Outlook predicts the overall entertainment market reaching $3.5 trillion by 2029, where gaming plays a critical role in that growth.
Among the major players in the video game industry, Electronic Arts (EA) stands out. EA is one of the largest video-game studios, involved with major franchises such as Battlefield, Sims, Sports FC, and various sports franchises like the Madden series. The company's strong, recognisable brand provides a degree of protection from competition.
Despite a slight setback earlier this year when some of its latest games were less successful than expected, causing EA's share price to fall by 20%, the company's revenue has grown by more than a third over the last five years. This growth is attributed to EA's strategy of generating recurring income through the sale of additional features for each title, such as extra stadia or team uniforms in its sports games.
Moreover, EA offers a subscription service for accessing a library of its top titles for a monthly or yearly fee. This service, along with the company's focus on major franchises, has helped EA maintain a strong operating margin of around 20%.
The company's financial health is further evidenced by its return on capital employed, which stands at around 17%. This is particularly impressive when compared to other major games studios, such as Take-Two Interactive, which trade at around 26 times 2027 profits.
With revenue expected to expand by 5% a year over the next two years, EA's share price has recovered from the disappointing start to 2025. The suggested stop loss for going long at the current price of $155 is $105, indicating a positive outlook for the company's future.
In conclusion, the video game industry is expected to continue its growth trajectory, with Electronic Arts well-positioned to benefit from this expansion. The company's strong brand, recurring revenue model, and focus on major franchises make it a solid investment choice for those interested in the gaming sector.
[1] Gamespot Article [2] PwC Global Entertainment & Media Outlook [3] PwC Global Entertainment & Media Outlook Executive Summary [4] PwC Global Entertainment & Media Outlook Press Release
- The financial health of Electronic Arts (EA) is evident in its return on capital employed, which stands at around 17%, a figure that outshines other major games studios.
- EA's revenue is expected to grow by 5% a year over the next two years, a factor that has contributed to the recovery of the company's share price from the disappointing start of 2025.
- With the video game industry projected to grow significantly and gaming expected to play a critical role in the overall entertainment market, investing in companies like EA could be a promising move in the world of business and stock-market, especially considering technology's increasing influence on gadgets and gaming experiences.
