Electronic Arts Inc. (EA) produces a lot of games, but all eyes will be on Apex Legends.
The game surprised analysts with its lightning fast popularity and early success against Fortnite.
The question now becomes monetization and follow through. Growth of the game will obviously have slowed in percentage terms, but if EA can demonstrate it continues to take market share from Fortnite, as well as post organic growth, then investors will likely believe market saturation for the Battle Royale games has not yet been reached.
Subscription-based gaming/revenue, as well as in-game revenue, is key moving forward. EA Access subscriptions are now available through PC, Xbox One, and Playstation 4.
While I'm not blown away by what it has to offer, this is the future direction of gaming. Companies are evolving into SaaS, or maybe more accurately, Gaming-as-a-Service (GaaS).EA is a tough one to game into earnings (sorry, I had to). Tuesday's action amps up volatility expectations on just about any company reporting Tuesday after the bell.
Currently, the options market has EA priced for a 8.6% into Friday's close. If that doesn't feel like a big move, it should.
Only twice in the past 10 reports has EA closed with a move greater than 7% the day after it reports.
In fact, over the three days following its earnings report, it has only closed with a move greater than 7.2% one time out of those ten.
The respective average moves were 5.5% and 5.1%.
Historically speaking, options are priced on the high side of expectations and could be easily called expensive.
Unfortunately, EA is the epitome of randomization in terms of earnings reactions. There is nothing in the way of a continuation trend, reversal trend, or movement size. That means a post-earnings play is off the table for consideration from me.
Volatility longs might like the current technical setup.
An open under $90 could cause a waterfall of selling, pushing the stock quickly to $80. On the upside though, resistance doesn't break until $100, with additional pressure at $105. Bears have a clear upper hand on the charts, but they need to push EA under $90, otherwise the setup favors a bounce first before more potential downside.
This is probably the WORST pre-earnings setup with the WORST post-earnings predictive model I've seen on a stock in a long while.
Couple that with the volatility of the market, and there is little I would want to do here.
The only trade I would consider is an iron condor that is short the May 10 $90 put/$95 call strangle, and long the May 10 $81 put/$104 call, for a net credit around $440.
This would risk $460 to potential make $440, and would need to see a 12.4% to realize a max loss with a 7.4% move to break even.
Like it, don't love it.
Stay safe out there. It's a challenging environment.