Video games are big business. The global video game market will grow to more than $180 billion by 2021, according to market intelligence company Newzoo, up from $138 billion in 2018.
Within this enormous and rapidly growing industry, Electronic Arts (NASDAQ:EA) stands as a titan. Yet the $32 billion behemoth has long runways for growth still ahead. Read on to learn more about two of its most intriguing growth opportunities.
Free games can be very profitable. How can that be? It’s because while these games may be free to play, they also give players the opportunity to purchase upgrades and additional content. These in-game micro-transactions can amount to hefty sums. As an example, Epic Games’ massively popular Fortnite game reportedly grossed over $3 billion in profit in 2018, according to TechCrunch.
Electronic Arts gained a beachhead into this highly profitable market segment with the recent launch of Apex Legends, a free-to-play battle royale-style game that could be EA’s first significant challenger to Fortnite. Apex Legends is off to a tremendous start. In only a week’s time, the game amassed more than 25 million players. That bested even Fortnite’s record-breaking launch, during which its player base rose to 10 million players in two weeks’ time.
In response, Wall Street has showered Electronic Arts with a series of analyst upgrades. Merrill Lynch upgraded EA’s stock to buy, while Piper Jaffray increased its price target on the stock to $99 per share. The next day, analysts at Robert W. Baird hiked their price target to $106 per share.
Yet these price targets may prove too conservative. Apex Legends could generate as much as $500 million in revenue by 2020 for Electronic Arts, according to Baird analyst Colin Sebastian. That’s a significant sum for a business that produced $5.3 billion in revenue over the past year. Better still, Apex Legends’ success suggests that EA has cracked the free-to-play code — a formula it could use to produce additional hit games in the years ahead.
Image source: Electronic Arts.
Competitive gaming is another huge potential growth driver for video game makers. Last year, 395 million people watched esports events, according to Newzoo. This figure is projected to rise to 645 million by 2022. In turn, the global esports economy will top $1 billion for the first time in 2019, signifying year-over-year growth of more than 26%.
EA’s games are particularly well suited for esports. The company’s FIFA 19 soccer game was the best-selling console title in Europe in 2018. Moreover, FIFA’s competitive gaming programs saw an 80% surge in total minutes watched last year, and EA signed several new esports sponsors and partnerships.
EA’s Madden franchise is also an esports powerhouse. The game is revered by millions of NFL football fans and lends itself well to competitive tournaments. EA announced three new sponsors for its Madden Championship Series in January — another sign that the gaming giant’s esports growth initiatives are gaining steam.
Better still, FIFA, Madden, and other popular EA sports titles are helping to boost demand for the company’s subscription services. These new digital revenue streams have the potential to become powerful profit drivers for Electronic Arts.