Amidst the M&A Bonanza, Electronic Arts (NASDAQ:EA) is Waiting on the Sidelines – Simply Wall St

February 5, 2022 by No Comments

Significant mergers and even bigger declines marked the last few weeks. Although the gaming industry earned the spotlight, Electronic Arts Inc. (NASDAQ: EA) was absent in those conversations.

Meanwhile, the company quietly announced the latest earnings and a new C-level executive.

See our latest analysis for Electronic Arts

Third-quarter 2022 results:

  • EPS: US$0.23 (down from US$0.73 in 3Q 2021).
  • Revenue: US$1.79b (up 6.9% from 3Q 2021).
  • Net income: US$66.0m (down 69% from 3Q 2021).
  • Profit margin: 3.7% (down from 13% in 3Q 2021). Higher expenses drove the decrease in the margin.
  • Revenue missed analyst estimates by 3.2%.

Over the next year, revenue is forecast to grow 22%, compared to a 27% growth forecast for the industry in the US.

Over the last 3 years, on average, earnings per share have fallen by 30% per year, but its share price has increased by 12% per year, which means it is well ahead of earnings.

Battlefield 2042 launch didn’t meet the expectations, which isn’t surprising given the criticism from the community that launched a salvo of negative reviews on Steam. Fortunately, the Battlefield franchise accounted for less than 10% of bookings but damaging the brand might haunt some other earnings in the future. EA declined to provide specific sales numbers.

Meanwhile, the company appointed Chris Suh as a new CFO. Mr.Suh currently serves as a corporate VPO and CFO of Microsoft’s Cloud and AI segment.

Looking at 2021, PC spending increased across the board with US$5.74b spent on gaming hardware and accessories. PC game content did even better, growing 5% to US$7.9b.

What About M&A?

In the wake of the latest M&A activity in the sector, speculating on the next move for EA is a natural question. Throughout its history, EA had some notable acquisitions like Glu Mobile, Playdemic, or Codemasters, but the largest one was US$2.4b.

Interestingly, Activision-Blizzard CEO Bobby Kotick stated they considered the EA merger before the Microsoft acquisition.

While impossible to speculate who might acquire EA, we can list a few potential scenarios:

  • Sony or Nintendo – gaming cost synergies)
  • Facebook(Meta) – metaverse gaming needs a turnaround story after the latest earnings

What does the future of Electronic Arts look like?

NasdaqGS: EA Earnings and Revenue Growth February 5th, 2022

Future outlook is an important aspect when you’re buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a low price. Electronic Arts’ earnings are expected to double over the next few years, indicating a very optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Depending on where you bought, you might be disgruntled with the sideways price movement over the last 2 years. Yet, our valuation model is showing potential, while the annual earnings growth forecast seems healthy. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping …….



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