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.
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Follow Electronic Arts Inc. (NASDAQ:EA)
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).
How are hedge funds trading Electronic Arts Inc. (NASDAQ:EA)?
Heading into 2016, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 12% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Stephen Mandel’s Lone Pine Capital has the biggest position in Electronic Arts Inc. (NASDAQ:EA), worth close to $442.8 million, corresponding to 1.9% of its total 13F portfolio. Sitting at the No. 2 spot is Coatue Management, led by Philippe Laffont, holding a $324.1 million position; 3.2% of its 13F portfolio is allocated to the company. Remaining peers that are bullish comprise Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and D.E. Shaw & Co. L.P., founded by David E. Shaw.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Newbrook Capital Advisors, managed by Robert Boucai, assembled the largest position in Electronic Arts Inc. (NASDAQ:EA). Newbrook Capital Advisors had $60.6 million invested in the company at the end of the quarter. Guy Shahar’s DSAM Partners also initiated a $33.2 million position during the quarter. The following funds were also among the new EA investors: Kamyar Khajavi’s MIK Capital, Clint Murray’s Lodge Hill Capital, and Louis Bacon’s Moore Global Investments.
The next page of this article covers the hedge fund activity in a few companies with market capitalizations similar to EA’s market cap.
Let’s go over hedge fund activity in other stocks similar to Electronic Arts Inc. (NASDAQ:EA). These stocks are AmerisourceBergen Corp. (NYSE:ABC), HP Inc. (NYSE:HPQ), Sirius XM Radio Inc (NASDAQ:SIRI), and Perrigo Company (NASDAQ:PRGO). This group of stocks’ market valuations are similar to EA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABC | 37 | 1265605 | -1 |
| HPQ | 40 | 874393 | -19 |
| SIRI | 32 | 1318944 | -3 |
| PRGO | 48 | 1628068 | -15 |
As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1.27 billion. That figure was $2.26 billion in EA’s case. Perrigo Company (NASDAQ:PRGO) is the most popular stock in this table. On the other hand Sirius XM Radio Inc (NASDAQ:SIRI) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Electronic Arts Inc. (NASDAQ:EA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
