Electronic Arts Inc. (EA): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and famous investors to create an extensive database of hedge fund holdings. The most recent round of 13Fs reveals hedge funds and investors’ positions as of the end of final quarter of 2015. One can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, this article discusses their collective moves and analyzes what the smart money thinks of Electronic Arts Inc. (NASDAQ:EA) based on that data.

Electronic Arts Inc. (NASDAQ:EA) investors should pay attention to an increase in hedge fund sentiment lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as AmerisourceBergen Corp. (NYSE:ABC), HP Inc. (NYSE:HPQ), and Sirius XM Radio Inc (NASDAQ:SIRI) to gather more data points.

In the eyes of most stock holders, hedge funds are perceived as underperforming, old investment tools of yesteryear. While there are more than 8000 funds in operation at present, We choose to focus on the crème de la crème of this club, about 700 funds. These investment experts control the majority of the smart money’s total capital, and by tracking their top picks, Insider Monkey has come up with several investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Electronic Arts Inc. (NASDAQ:EA) is a developer, publisher, and distributor of game software content and services played on numerous platforms such as video game consoles, PCs, mobile phones and tablets. The company’s business model has been undergoing a transition from a traditional packaged goods business model to a model in which games are sold and delivered to end customers through a network connection. In fact, many of the company’s products that were previously sold solely as packaged goods products can be now purchased and downloaded online. To view a snapshot of how successful EA has been in capitalizing on the aforementioned transition, investors should note that the company’s digital net revenue totaled $2.20 billion for fiscal year 2015, up from $1.83 billion in fiscal year 2014 and $1.44 billion in fiscal year 2013. Moreover, Electronic Arts Inc. (NASDAQ:EA) generated digital net revenue of $1.82 billion during the nine months that ended December 31 (first three quarters of fiscal year 2016), an increase of 12% year-on-year. The company’s digital revenue includes revenue generated from full-game downloads, extra content, subscriptions, advertising and other, and mobile revenue.

It is also important to mention that Electronic Arts Inc. (NASDAQ:EA) continues to make more money from post-release downloadable content. The consumer acceptance of free-to-download business models, which enable customers to play games with no up-front cost, has served EA quite well in the past several years. Electronic Arts Inc. (NASDAQ:EA) has been able to capitalize on this free-to-download business model, as more customers pay for additional content or in-game items. The company’s extra content generated $810 million during the nine months that ended December 31, which marked an increase of 19% year-on-year. All in all, investors can anticipate that micro-transaction-based PC games played online will most likely generate more revenues for EA in the foreseeable future. The shares of EA have advanced 13% over the past 52 weeks and trade 18.09-times expected earnings, slightly above the forward P/E multiple of 16.55 for the S&P 500 gauge.

With all of this in mind, let’s take a peek at the new action surrounding Electronic Arts Inc. (NASDAQ:EA).