Electronic Arts Inc (EA)

Has a lot of sports franchises, lacking a single hit videogame. He likes its predictability. It has been offered a buyout, and will likely conclude the deal in Q2.

(Note the short timeframe.)  Takeover bid of $210, which should settle in Q2.

The space is doing fantastically well. Great franchises, an absolute money machine. There's a rule to buy software companies when growth + margins = 40 or more. For EA, this number is 94. July 29 report beat on top and bottom and raised guidance.

(Note the short timeframe.)  Chose it as a Top Pick because the price was depressed. The most utility-like of the video game companies. Weak on the mobile side. At some point, will probably be taken over, and at a premium.

They have a lot of sports titles. They lost FIFA, but have their own soccer franchise, plus baseball and basketball. Sports are steady as opposed to companies depending on a few hit games. Ultimately, someone will buy them out, like Netflix  or Amazon or Apple, who could pay twice the multiple.

Likes the portfolio, though a bit weak in mobile. Discretionary spend on some titles has been a bit lower. Over the long term, can grow 5-6%. 30% free cashflow margins, enough to buy back 5-6% of shares every year. In-game transactions are 99% gross margins. Yield is 0.6%.

Was down 16% last month when they pre-announced shockingly light numbers, given weakness in their biggest titles (i.e. soccer game).

This pick results from his looking at the application layer 12 months down the road. Model training algorithms are already being monetized in healthcare, education, and now sports/entertainment. Investor day last week saw a lot of AI tools. Yield is 0.5%.

12-month price target of $167.50. Buy 1/3 here around $141, $134, and $125.

Video game demand down post Covid.
Has since sold shares.
Unsure on future of video game demand.
Waiting to see prospects for business.