ANKARA, TURKEY – SEPTEMBER 12: A photo shows the logo of ‘Electronic Arts’ video game company on a … [+]
Electronic Arts (NASDAQ: EA) is slated to release its Q3 fiscal 2020 results on January 30, 2020. For full fiscal 2020, Trefis estimates that the company will report:
- Revenues of $5.4 billion, reflecting 8.9% y-o-y growth, primarily driven by the company’s new titles and continued growth in e-sports franchises. Our forecast is slightly higher than the average consensus revenue estimate of $5.2 billion.
- EPS figure will likely grow to $4.60 on an adjusted basis, primarily due to higher revenues. Our EPS figure is lower than the average consensus estimate of $4.71.
We don’t expect any significant movement in the company’s stock price post earnings announcement. In fact, our forecast indicates that Electronic Arts’ valuation is $106 a share, which is 5% below the current price of ~ $112. Our interactive dashboard analysis on Electronic Arts’
e-Earnings has more details about our expectations, parts of which we highlight below.
(1) Revenues Expected To Grow In High Single-Digits
- Trefis estimates Electronic Arts’ 2019 revenues to be $5.4 billion, slightly higher than the consensus of $5.2 billion for fiscal 2020.
Services $4.2 Bil (47%)
Product $1.2 Bil (22%)
TOTAL $5.4 Bil
Consensus $5.2 Bil
Surprise $0.2 Bil
- Total revenues have increased at an average annual rate of 4.2% from $4.4 billion in fiscal 2016 to $5.0 billion in fiscal 2019, primarily driven by the company’s services segment. It is expected to see 8.9% growth in 2019, primarily led by continued growth in services.
- See Electronic Arts Revenues – How Does EA Make Money? We provide an interactive, in-depth view of the company’s revenues along with our forecasts.
- Key for fiscal 2021: Electronic Arts revenue will likely grow at an average rate of 7.8% over fiscal 2020-2021, led by the company’s new titles.
(2) EPS Likely To Grow 5%
- Electronic Arts’ fiscal 2020 adjusted earnings per share is expected to be $4.60 per Trefis analysis, reflecting 5.2% y-o-y growth. This is slightly lower than the average consensus estimate of $4.71.
Total Revenues $5.4 Bil
– Total Expenses $4.0 Bil
Net Income $1.4 Bil
÷ No. of Shares 299 Mil
- A growth in revenues and lower number of shares, partly offset by growth in expenses, will largely drive EPS growth.
- As we forecast Electronic Arts revenues to grow 8.9%, and expenses to grow at 11.1%, this will result in a 140 bps decline in the company’s adjusted net income margin figure from 27.0% in fiscal 2019 to 25.6% in fiscal 2020, as detailed in the dashboard on Electronic Arts’ Pre-Earnings.
- See Electronic Arts Expenses – How Does EA Spend Its Money? We provide an interactive, in-depth view of the company’s expenses, and earnings margins.
- Key for fiscal 2021: We believe that revenue will continue to grow in high single-digits on average, while expenses could grow at a slightly faster pace, resulting in the net income margin figure to decline to 25.9% from 27.0% figure in fiscal 2019. We currently forecast Electronic Arts’ fiscal 2021 EPS to be $5.09 on an adjusted basis.
(3) Stock Price Estimate ~ 5% Lower Than Market Price
- Trefis forecast for Electronic Arts full fiscal 2020 earnings of $4.60 and P/E multiple of 23.0x works out to a fair value of $106 for Electronic Arts’ stock, which is roughly 5% lower than the current market price of around $112, implying 23.8x multiple and average consensus eps of $4.71.
- A P/E multiple of 23.0x looks appropriate for Electronic Arts’ stock, which is slightly lower than the current implied P/E multiple of 23.8x.
- We use our full discounted cash flow model for Electronic Arts to arrive at a P/E multiple of 23.0x for a price estimate of $106.
- Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year