EA may part ways with FIFA. US companies to be allowed to export semiconductors to China. A new study by American economists casts doubt on stock market wisdom about, that the inflated prices of some companies can be justified by their future profitability.
Disclaimer: when we talk about, that something has grown, we mean a comparison with the same quarter a year earlier. Since all issuers are from the USA, then all results in dollars. When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
"Your expectations are your problems": Electronic Arts may lose FIFA
Game maker and publisher Electronic Arts (NASDAQ: SHE) may lose license for FIFA games. The current agreement ends after the World Cup in Qatar in 2022, and FIFA does not want to renew the contract.
Thanks to this agreement, FIFA receives $ 150 million in royalties per year.. But the association wants more: she claims to be 250 million a year. Furthermore, FIFA plans to limit the rights of exclusivity of different elements of the championships, such as stadiums, game tournaments, valuable virtual items and other, for EA games: probably, FIFA wants to be able to sell the rights to this content to other companies.
For EA, the agreement with FIFA as follows, what does FIFA want, profitable much less: the essence of FIFA's requirements can be described something like this - the association wants to give EA less for a larger amount.
May be, the parties will agree. Maybe, and no: EA registered trademark EA Sports F. C. - apparently, to call the next game of the FIFA series in the event, if you can't reach an agreement.
Strictly speaking, if EA does not agree with FIFA, it will only lose the rights to the name, logo and the right to make games about the world championship. EA has separate contracts, about 300 pieces, as with whole clubs and leagues, as well as with individual players - so they stay in games.
But in theory, a name change could negatively impact EA's reporting.: EA's first FIFA game released in 1993, several generations of players grew up on this brand. Will they want to play EA Sports F. C. 2023 instead of FIFA 2023? Maybe, Yes. Or maybe, and no.
We don't know for sure, how much money FIFA games give to EA. But EA herself says, that much. Basically, we can guess approximately. The financial report for 2021 has more than $ 1.6 billion in revenue - 28,42% from EA revenue - the company received from the Ultimate Team gaming service, tied to FIFA.
The FIFA initiative did not appear out of nowhere: football now, like other types of mass entertainment, going through hard times. A sharp drop in income due to the pandemic almost led to the creation of an alternative Super League in the summer. FIFA is looking for additional revenue streams in the face of falling revenues and rising costs of retaining top clubs. Getting EA to shell out and sell your content to other companies is a clear strategy for FIFA in the current environment.
All this news doesn't bode well for EA. Because commercially, FIFA games are the perfect cash cow. Every year, a game almost identical to last year's predecessor is released., which has some cosmetic changes, - but in general there is a lot to change there and it is not necessary. Any Jedi Fallen Order to do is long and dreary. But FIFA has a ready-made loyal audience. Whether it will remain after losing the FIFA trademark - unknown. But FIFA's movements, regardless of outcome, can lead to other problems.
It seems to me, after FIFA clubs and players, including American football, will also begin to demand a renegotiation of current agreements with EA and then EA's sports business will stagger. All professional sports are now out of money - so other EA sports partners can ask EA to share. And if it happens, then EA shareholders will have a reason to be very upset.
If you can't, but really want to, then you can: US allows semiconductor exports to China
US recently imposed sanctions on Chinese tech companies Huawei and SMIC. American companies are prohibited from entering into direct relations with these companies without a special right.. But it turned out in October, that the US government issued more than $ 100 billion in export licenses to American companies - 113 licenses for 61 billion for Huawei shipments and 188 licenses for 42 billion for SMIC shipments. Deliveries were made from 9 November 2020 to 20 April 2021. This news is rather good..
Many US semiconductor and equipment manufacturers supply large volumes of goods to China. The threat of a ban on trade with other Chinese customers constantly looms over the business. But, as shown by the example of export licenses for Huawei, the American government, for all its dislike of China, does not intend to ruin its own high-tech industry.
It gives hope, that in the event of another round of trade war between the two countries, the business of American issuers with a significant share of sales in China will not be much affected.
The high price of the issuer's shares is not justified by the financial statements
Recently, American economists shared a study by Lifetime Earnings. In it, they analyzed the reporting of over 16 thousand American companies., who managed to bargain on the stock exchange during the period from 1 January 1975 to 1 January 2019. Here's what you can see in this study..
Centenarians. Only 17% companies are traded on the stock exchange to this day, and 42% merged with other companies. The rest disappeared from the exchange for various reasons.: became private, went bankrupt or were excluded by regulators.
Pumping. Investors are pumping quotes of some companies to the stratosphere in anticipation of that, that the growth in profits of these companies will justify the extremely high price in the future. This, basically, not a secret. Here's what was really unexpected about the study., so this is the conclusion about, that these expectations are often not justified and are not realized over long distances. Relatively speaking, for every 10 $, spent on the purchase of one expensive and promising company in 2000, by 2019 it will be good if there will be 2 $ lifetime earnings. That is, the company pumped up in anticipation of "great accomplishments", usually, does not really justify the credit of trust given to her.
The best result of the surveyed companies was Amazon (NASDAQ: AMZN). Adjusted for the division of shares, they were worth in 1997 about 24 $. By 2019, the company's total earnings per share were approximately 53 $ - adjusted for inflation. This is not the worst result - but the lion's share of the increase in profits took place in 2017-2018. So if you took Amazon stock in 1997, then you would have waited a very long time for profit, justifying its cost. But most companies do not even show such a result..
On the one side, the researchers' conclusions are quite pessimistic: probably, overvalued unprofitable startups existing today will never justify their current value - and therefore their quotes grow only due to the irrational belief of investors in their future success. And that means, that bloated P / S and P / E exist by credit of trust, issued without reason. And this can lead to a sharp drop in the value of shares..
On the other hand, there is nothing wrong with that. Shares of unprofitable startups do not necessarily expect a fall. More than likely, that such companies will be bought up by tech giants. So you can buy companies at historical highs - but not with the expectation, that their business will justify such a price in a certain number of years, and with the expectation, that their life on the stock exchange will end with their purchase by someone larger.
