EA – Electronic Arts, Inc

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About Electronic Arts, Inc

Electronic Arts, Inc. provides the digital interactive entertainment to its users. Its primary concerns are related to the development and deliverance of games, content and provision of online services for Internet-connected consoles, mobile devices, and personal computers. The company operates its facilities in North American and other geographical regions of the world.

Head quartered in Redwood City. CA, the products brands of the company include The Sims, Madden NFL, EA SPORTS FIFA, Battlefield, Need for Speed, Dragon Age, and Plants vs. Zombies.

Electronic Arts recent developments

The shares of the EA has been on decline since mid-July this year. A lot of the drop in the share price can be blamed on the current performance of the equity markets, but there is no way one can hide from the fact that the fall was also due to lower than expected sales of its new releases of games this year. Further, the company has also an issue of its reputational performance where the top management of the company did not pay any heed to the critics of the industry.

Financial performance

The performance of the company on year-over-year basis was also remarkable. The revenues sales expanded by 8.24 percent with the EBITDA margin growing by 28.54 percent. The operating income in terms of EBIT, went up by 28.54 percent in fiscal year 2018.

Over the period of three years, the topline of the company grew by 9.6 percent per year on average. The EBITDA of the company during the same period swelled by 61.33 percent. This shows the company is operating efficiently and effectively for the last three years.

Future performance

Owing to the expansion in its operating margins and persistent in the growth of its revenues, the company is poised to the one of the most attractive stocks of 2019. This is due to the fact that despite all the media wrangling of the company, the entity has solid financials to entice its shareholders. The company still manages to constantly grow its sales revenue at a decent rate relative to its peers.

Further, according to the latest findings of Newzoo, a research agency, the gaming business is expected to grow by 13.3 percent by the end of 2018 as it has earned a record revenues of ~$138 billion. Further, it is also projected that this business is going to continually grow at the CAGR of approximately 11 percent until 2021.

It is pertinent to state that the entire business of the EA comes from the gaming industry and the growth in the overall industry auger well for the future revenues of EA. Additionally, the release of its upcoming AAA title Anthem that will hit the market in February next year. And according to the company sources, the games release is forecasted to help the entity to increase its full-game sales by 20 to 25 percentage points in the next year. 

However, we believe the company is trading below its valuation. Currently the company is trading at the P/E ratio of 25.42x with a price to book value of 4.53x per share. Nevertheless, the consensus estimate of the company’s target price is $120.60 per share. This is an increase of almost 50 percent from the today’s price. The investment horizon of this investment is one year.

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