Why Shares of Electronic Arts Inc. Popped 24% in May

By Markets Fool.com

What: Shares of game maker Electronic Arts Inc. jumped 24.1% in May, according to data provided by S&P Global Market Intelligence, as earnings wowed investors.

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So what: Electronic Arts released fiscal fourth-quarter 2016 earnings early in May and results easily topped expectations. Revenue was up 3% to $924 million and adjusted earnings per share were $0.50. That exceeded the $888.8 million in revenue and $0.42 in earnings Wall Street expected.

Contributions from Star Wars Battlefront and mobile games were seen as the biggest drivers of the quarter and are expected to help the company in fiscal 2017 as well. Management said it expects revenue to grow about 7% this fiscal year to around $4.9 billion and earnings to be about $3.50 per share.

Now what: Given the single-digit growth rate, Electronic Arts' shares aren't cheap at 22 times earnings, but the company has clearly learned how to make money in the new gaming environment. In fact, mobile games give it a much larger potential customer base and in-app purchases combined with expansion packs are a great way to generate more ongoing revenue. The huge pop in shares during May makes me a little wary that shares have gone too high too fast, but operationally the company is hitting on all cylinders.

The article Why Shares of Electronic Arts Inc. Popped 24% in May originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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