Can Electronic Arts Stock Grow 10% From The Current Levels?
Our price estimate for Electronic Arts’ (NASDAQ: EA) stock is $120, which is at a premium of around 10% to the current market price. Our price estimate is based on expected fiscal 2020 earnings of $4.70 on an adjusted basis, and a price to earnings multiple of 25.5x. Electronic Arts’ stock has seen over 80% growth over the last 4 years or so, as the company posted steady earnings growth, primarily led by its in-game purchases.
Electronic Arts is an international developer, marketer, publisher, and distributor of games for video game consoles, personal computers, mobile phones, and the Internet. Its end users include gamers across the globe. It competes with other gaming companies, including Activision Blizzard and TakeTwo Interactive. In this note we focus on estimating Electronic Arts’ stock price. You can look at our interactive dashboard analysis on Electronic Arts valuation for more details.
#1. Estimating Electronic Arts Total Revenues:
- Total revenues have increased from $4.4 billion in fiscal 2016 to $5.0 billion in fiscal 2019, and they could grow 10% to $5.5 billion in fiscal 2020.
- Our interactive dashboard analysis, EA Revenues: How Does Electronic Arts Make Money, provides an in depth view of the company’s revenues.
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#1.1 We compare trends in Electronic Arts total revenues with that of its peers in Electronic Arts valuation dashboard.
- You can look at our interactive dashboard analysis on Activision Blizzard vs. Electronic Arts for more details on how the revenues and other key metrics changed for both the companies over the recent years.
#2. Deriving Electronic Arts Adjusted Net Income:
- Adjusted Net Income grew from $1.0 billion in fiscal 2016 to $1.3 billion in fiscal 2019, and we expect it to be around $1.4 billion in 2020.
- This growth will likely be led by higher revenues, partly offset by a slight decline in net income margin, as the company might have to incur higher promotional expenses toward new game launches.
- The jump In Adjusted Net Income Margin in fiscal 2018 can partly be attributed to the impact of the U.S. Tax Act.
- Look at our interactive dashboard analysis on EA Expenses: How Does Electronic Arts Spend Money for more details on the company’s expenses.
#3. Determining Electronic Arts Adjusted EPS:
- Adjusted EPS has grown from $3.08 in fiscal 2016 to $4.37 in fiscal 2019, and we estimate it to be $4.70 in fiscal 2020.
- EPS growth from 2018 can be attributed to higher Adjusted Net Income.
#4. Estimating Electronic Arts Stock Price:
- Our price estimate of $120 for Electronic Arts is based on our Detailed Valuation Model, and implies a 25.5x P/E Multiple on expected fiscal 2020 Adjusted EPS of $4.70.
Comparing Electronic Arts Historical P/E Multiple With That of Its Peers
- P/E Multiples are based on Share Price at the end of year (fiscal), and reported adjusted EPS for the full year (fiscal).
- P/E Multiples for all three gaming companies have fluctuated widely over the recent years.
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