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After 20% Drop In A Month, Will Coronavirus Help Or Hurt Electronic Arts?

Electronic Arts (NASDAQ: EA) has fared better than the broader markets through the current coronavirus and oil price war crisis, with the stock currently down by about 18% since early February, after the WHO declared a global health emergency. In comparison, the S&P 500 is down by about 26%. On the face of it, Electronic Arts stands to benefit, as the demand for gaming could see traction, as more people are confined to their homes, eschewing more public forms of entertainment. Even before the crisis, Electronic Arts was doing well with its stock seeing a 37% jump in 2019, amid strong reception for its new game, Apex Legends. The company has a strong balance sheet with cash and investments of over $4.5 billion, and less than $1.0 billion in total debt. Less leveraged stocks typically fare very well during such crises. Having said that, going by trends seen during the 2008-09 crisis, Electronic Arts could underperform the broader markets. We discuss how Electronic Arts and the S&P 500 have fared thus far through the COVID-19 crisis, and compare it to the performance through the financial crisis of 2008 in our interactive dashboard analysis on 2008 Crisis vs. 2020 Coronavirus Comparison: Electronic Arts Stock Compared with S&P 500.

  • On Thursday, March 12, the stock markets saw their biggest sell off since 1987’s Black Monday. While the markets saw a sharp recovery on Friday, March 13, it again saw a sharp decline of around 13% on Monday March 16, marking one of the biggest declines ever for the U.S. markets.
  • There were two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production.
  • Electronic Arts stock fell 18% over the last 6 trading sessions, (between March 9, and March 16), as well as since early February, considering the impact that the outbreak and a broader economic slowdown could have on the company’s business.
  • Going by the trends seen during the 2008 economic slowdown, it’s likely that EA stock could see slight recovery, but it will likely underperform the broader markets, when the crisis winds down.

Electronic Arts Stock vs. S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Electronic Art’s stock declined by about 18% between March 8, 2020 and March 16, 2020 and the stock is down by about the same 18% since February 1, after the WHO declared a global health emergency.
  • The S&P 500 declined by 20% between March 9, and March 16, and it has fallen by 26% since February 1st.

We also compare the current coronavirus crash to 4 other market crashes here.

Electronic Arts vs. S&P 500 Over 2007-08 Financial Crisis

  • EA stock declined from levels of around $58 in October 2007 (the pre-crisis peak) to levels of around $16 in March 2009 (as the markets bottomed out) and recovered to levels of about $33 in early 2010.
  • Through the crisis, EA stock declined by as much as 72% from its approximate pre-crisis peak. This marked a decline sharper than the broader S&P, which fell by as much as 51%.
  • EA stock saw minor recovery of around 9% between March 2009 and January 2010. The growth was much lower than the S&P, which rose by about 48% over the same period.

Conclusion

  • While Electronic Art’s stock has declined due to the coronavirus outbreak and oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back, but potentially underperform the broader market, when the crisis winds down.

For more detailed charts and a timeline of the 2008 and 2020 crisis for different stocks, view our interactive dashboard analyses on coronavirus.

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