Text size
Videogames have become the world’s most lucrative global entertainment medium, but the industry’s top players are unknown compared with film directors and TV show runners.
Take Vince Zampella, who is responsible for the creation of three multibillion-dollar franchises, including the original Call of Duty and Modern Warfare, both of which are among the most successful games in history. Zampella also made Apex Legends as the head of Respawn, his independent studio that
Electronic Arts
(ticker: EA) wisely acquired in 2017. Earlier this year, EA announced that Apex had surpassed $2 billion in bookings.
Veteran Wedbush videogame analyst Michael Pachter told me that he once bumped into Zampella at Disneyland and couldn’t believe that one of the most successful game makers ever—someone who altered the course of pop culture—was walking around the theme park unrecognized.
I’m willing to bet that most investors and fund managers don’t know who Zampella is, either. They should.
“What’s unique about Vince is everything he touches turns to gold,” says Geoff Keighley, creator of The Game Awards, the Oscars of the videogame world. “No matter the genre or platform, he’s able to rally the team to make an amazing game. He pretty much has a perfect record.”
Modern game development is no easy feat, and it’s filled with game makers that don’t achieve repeat success. Executives have to manage hundreds of specialists in the diverse fields of animation, visual art, narrative writing, and programming, while dealing with budgets that are often in excess of $100 million.
Zampella hasn’t sought the limelight and rarely talks to reporters outside the gaming world. He finally agreed to speak with me after months of interview requests. I asked how he has managed to make multiple hits. “We definitely iterate and really try to home in on what’s fun,” Zampella says. “It’s not the best idea that wins; it is the best execution that wins.”
He also emphasized the importance of finding the best talent. “You hire amazing people and let them shine,” he says. “Don’t control what they do. You open the doors for them and let them do what they do best.”
The good news for EA shareholders is that the company has started to hand over more of its game properties to Zampella. Late last year, after a series of disappointing releases, the company gave responsibility for the storied Battlefield franchise to Zampella, which he’ll oversee along with Respawn’s games. This past week, EA announced the addition of another studio called Ridgeline Games that is under Zampella’s leadership.
Some on Wall Street are picking up on the potential for Zampella to spark a turnaround at EA. BofA Global Research analyst Omar Dessouky, who has a Buy rating and $155 price target for the stock, says his involvement with Battlefield should turn the company into a “shooter powerhouse over time.” Pachter agrees, and has an Outperform rating on EA with a $170 target. “I’m confident EA will get its mojo back due to Vince.”
Zampella’s work isn’t the only reason to be optimistic about EA stock, which recently traded at $129. In May, this column recommended EA as a play on the multiyear videogame-console cycle. I also noted that it was one of the few big independent game companies remaining and could attract takeover attention. Both of those ideas remain in play.
Since the column, EA shares have outperformed, rising 12% in a volatile market and beating the Nasdaq Composite by 12 percentage points. There is probably more upside.
The outlook for the console market has also brightened with
Sony
(SONY) announcing plans to boost manufacturing of PlayStation 5 consoles by at least 50% for its fiscal year ending in March 2023, citing an easing in chip shortages. More hardware in the hands of consumers should drive more revenue for software publishers, boosting EA’s fortunes.
Investors shouldn’t underestimate the potential for an EA takeout. Earlier this year, there was a flurry of merger-and-acquisition activity, with
Take-Two Interactive Software
(TTWO) buying mobile-games maker Zynga and Sony acquiring private game developer Bungie. The biggest deal of all was
Microsoft
’s
(MSFT) agreement in January to buy
Activision Blizzard
(ATVI) for $69 billion.
EA could be next on the shopping list as big companies clamor to be a part of videogaming’s bright prospects. According to Newzoo, the global games market is expected to grow to $226 billion by 2025 from $197 billion this year. EA has “incredible scarcity value,” Dessouky says. EA recently told Barron’s that it doesn’t comment on takeover speculation.
To be sure, an economic downturn could complicate the picture for EA. But videogames are one of the cheapest forms of entertainment on a per hour basis, and the category may be more resilient than other consumer-discretionary products.
EA stock trades at a reasonable 16 times expected earnings for the fiscal year that ends in March 2024. That valuation underappreciates the potential for several years of double-digit growth as EA rides the tailwinds of a robust console cycle and a reinvigorated games pipeline.
Microsoft is largely trying to buy Activision for its Call of Duty brand, where much of the company’s value lies. But it won’t be getting Zampella, who is busy creating the next Call of Duty–type hit for EA.
Microsoft might be buying the wrong company.
Write to Tae Kim at tae.kim@barrons.com
Read More: Electronic Arts Has a Game Maker With the Midas Touch. It’s Bullish for the Stock.