Electronic Arts (NYSE: EA) reported its Q2 fiscal 2024 results earlier this month (fiscal ends in March), with revenues and earnings beating the street estimates, but we believe that EA stock is fully valued, as discussed below. The company reported total bookings of $1.82 billion and adjusted profit of $1.46 per share compared to the consensus estimates of $1.77 billion in sales and $1.27 earnings per share. In this note, we discuss Electronic Arts’ stock performance, key takeaways from its recent results, and valuation.
EA stock has seen little change, moving slightly from levels of $145 in early January 2021 to around $135 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Overall, the performance of EA stock with respect to the index has been lackluster. Returns for the stock were -8% in 2021, -7% in 2022, and 10% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 18% in 2023 (YTD) – indicating that EA underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector, including GOOG, META, and NFLX, and even for the megacap stars TSLA, MSFT, and AMZN.
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In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could EA face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, EA stock looks appropriately priced. We estimate Electronic Arts’ Valuation to be $146 per share, reflecting only an 8% upside from its current price of around $135. Our forecast is based on a little over 20x P/E multiple for EA and expected earnings of $7.12 on a per-share and adjusted basis for the full fiscal 2024. The 20x P/E ratio aligns with the stock’s last five-year average. The company expects its adjusted earnings to be in the range of $4.10 and $4.66 per share in 2024.
Electronic Arts’ revenue of $1.9 billion in Q2 was flat y-o-y, but its total bookings of $1.8 billion were up 4%, driven by the launch of FC24 and continued growth in Madden NFL and FIFA franchises. Electronic Arts’ adjusted profit of $398 million in Q2’24 reflected a 1.5% decline from its $404 million profit figure in the prior-year quarter. The company’s operating margin declined 270 bps to 19.7%. The adjusted profit of $1.47 per share was marginally higher than the $1.45 figure in the prior year quarter, partly due to a 2.5% fall in total shares outstanding.
Looking forward, Electronic Arts should continue to benefit from its live services offering, primarily for the FIFA franchise. Furthermore, the company has benefited from its 2021 acquisitions of Playdemic, Codemasters, Metalhead Software, and Glu Mobile, a trend expected to continue in the near term. Electronic Arts expects its revenue and bookings to be between $7.3 billion and $7.7 billion in 2024.
While EA stock looks appropriately priced, it is helpful to see how Electronic Arts’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||7%||17%||101%|
|Trefis Reinforced Value Portfolio||7%||26%||550%|
 Month-to-date and year-to-date as of 11/16/2023
 Cumulative total returns since the end of 2016