Here’s One Stock That Can Appreciate Despite the Market Correction

2015 was an awful year for many sectors, but the gaming segment was an exception to that trend. The likes of Electronic Arts (EA) and Activision Blizzard (ATVI) witnessed good gains in 2015 and their outperformance may continue in 2016 as well. A step towards digital distribution was the main reason why the sector performed so well. It permitted both the companies to generate more revenue and extract widen profit margins.


While the gaming sector still looks strong, I prefer Electronic Arts going forward.
Electronic Arts removed retail intermediaries through which it can launch new game digitally, streamlining rollouts and offering games to its clients more swiftly. Digital downloads accounts for around two-third of Activision sales, but Electronic Arts has moved rapidly to gain market share from digital releases.

Disney’s Star Wars: The Force Awakens performed very well in the market after its release, as it earned more than $1.2 billion. Disney was not the only one to make profit from Star Wars as Electronic Arts also made huge profits from its latest game, Star Wars: Battlefront, which was launched in November 2015, approximately a month before the movie hit the box office.

When GameStop shared light sales a week after the game release, it appears to be an early concern about the game for Electronic Arts. However, I believe the anxiety will prove to be short lived as GameStop’s broken business model may have to do something with its declining sales.

The main reasons why the company’s Battlefront sales are likely to impress are digital sales and the success of the movie. Star Wars: Battlefront was launched at highly competitive time in the multiplayer online game market, however it will likely come out as the winner. As of now, the movie has proved to be a major blockbuster and it’s probable that the delight and positive reviews of the movie will further drive Electronic Arts’ sales.

Conclusion

Electronic Arts is off to a rough start to 2016 as the stock is down almost 4%. However, the stock has still managed to outperform the market as the stock hasn’t been hammered like other tech stocks amid the market wide selloff. While many analysts are expecting the market correction to continue, I think Electronic Arts will not be negatively affected by it to a large extent. The success of Star Wars will act as a big revenue driver for Electronic Arts in the months to come and the stock looks likes a winner for now.

Published on Jan 18, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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