Personal Finance

Why Shares of Electronic Arts Inc. Popped 20% in May

Four guys playing video games.

What happened

Shares of video game specialist Electronic Arts Inc. (NASDAQ: EA) jumped 19.5% last month, according to data provided by S&P Global Market Intelligence , after the company reported another strong quarter.

So what

Fiscal fourth-quarter results were released in early May, showing revenue rose 17% to $1.53 billion while operating income jumped 34% to $717 million . Net income fell 37% to $566 million, or $1.81 per share, but that was due in large part to an income tax benefit a year ago transitioning to a loss in the most recent quarter.

Four guys playing video games.

Image source: Getty Images.

Like its competitors Activision Blizzard and Take-Two Interactive , EA is moving to a business that generates more revenue from digital sources, like mobile and add-ons for console games. Sixty-one percent of total revenue was from digital sources, or $3.03 billion, up 20% from a year ago. Management also said it expects fiscal 2018 revenue to be about $5.075 billion and net income to be $1.125 billion, or $3.57 per share.

Now what

Video game companies are making a smart shift to digital revenue streams, and EA is no different. What'll be important to watch is whether or not growth continues well into double digits. Guidance for 2018 implies a growth rate of just 4.7%, which is low for a stock trading at 30.5 times forward earnings guidance. If growth doesn't pick up, this looks like a very expensive stock for today's market.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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