On Oct. 29, Electronic Arts (NASDAQ:EA) announced that its EA Access subscription service would be available on Steam, an online gaming community, starting next spring. The move returns EA to Steam after an eight-year absence. The deal should be good for EA stock. Here’s why.
Greed Hasn’t Been Good for Electronic Arts Stock
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n 2011, Electronic Arts launched Origin, the company’s online store for buying, downloading, and playing EA games using a mobile device or PC. The cloud-based service provides gamers with convenient access to their favorite EA games.
While online gaming was still in its infancy, the company felt it was the right time to launch its own online store, thereby eliminating the 30% cut it paid Steam on every sale of its games that was made on the Steam platform.
Why should EA pay a 30% commission on each video-game sale when it can avoid the commission by selling games on its own platform?
On the surface, that makes a whole lot of sense.
However, there are plenty of examples in which manufacturers sell both wholesale and direct. Among the high-profile examples of that phenomenon are Canada Goose (NYSE:GOOS), Boston Beer (NYSE:SAM), Nike (NYSE:NKE) and Canopy Growth (NYSE:CGC). All of them don’t seem to be suffering by sharing their profits.
Electronic Arts struggled for eight years to get Origin off the ground, only to see its platform languish in fifth or sixth place. That shows that the company should follow in the footsteps of the companies above and allow other retailers, like Stone, to sell its products.
“(By) having its titles on Origin as well as Steam, (EA) will increase its sales substantially. Even with the 30% cut, the sheer number of sales it is now opening itself up to will net the company more money than if it only had it on its proprietary client,” CBR.com contributor Esteban Cuevas stated in an article published on November 3.
My only question is, what took Electronic Arts so long to reunite with Steam?
The Bottom Line on EA Stock
During the summer, I wrote a piece about Electronic Arts stock, suggesting that EA stock price should hit $175 sometime in the next 18-24 months. The company’s decision to rejoin Steam should help keep EA stock on track.
The partnership with Steam will resume on Nov. 15 with the launch of Star Wars Jedi: Fallen Order. After that, many of the other popular EA titles will join the Steam platform.
The only downside for Stone’s customers is that they will need to download the Origin launcher to play EA’s games. However, they will be able to access EA’s games from Stone and Origin.
That’s a good thing.
As for Electronic Arts stock, I like it over the long haul because it generates excellent free cash flow, a point another InvestorPlace contributor, Mark Hake, mentioned recently.
With a free cash flow yield of 5.3%, EA stock is cheaper than most of its peers. The partnership with Steam makes Electronic Arts stock even cheaper.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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