Last Update04 Oct 25Fair value Increased 11%
Electronic Arts' fair value estimate has increased significantly from $175.53 to $194.69 per share, as analysts cite the premium offered in the company’s go-private deal and the limited likelihood of further competing bids.
Analyst Commentary
The agreement for Electronic Arts to go private has prompted a series of analyst reactions that reflect both optimism and caution regarding the company's future prospects and valuation.
Bullish Takeaways- Bullish analysts highlight that the acquisition price of $210 per share represents a significant premium to recent trading levels, suggesting confidence in the company's long-term value creation.
- Positive sentiment is evident surrounding the open beta and expected strong launch of Battlefield 6, which could lead to higher player engagement and revenue growth in the near term.
- Data from the Battlefield 6 beta shows strong player participation and generally favorable feedback, with only isolated concerns about specific game modes. This reinforces confidence in EA's ability to execute on major releases.
- Some analysts point to the favorable strategic alignment brought by the consortium, which may provide financial and operational support for future growth initiatives.
- Bearish analysts express concern that the likelihood of competing bids for EA is limited. This could potentially cap upside for shareholders from the current go-private offer.
- Several analyst downgrades reflect the view that the stock price is now tied more to the deal terms than to underlying fundamentals or future growth prospects.
- There is caution about the growing influence of certain consortium partners, with some noting that increased involvement of large, well-capitalized investors could reshape the competitive landscape for other publishers.
- Some note that with the company no longer trading on fundamentals, traditional valuation metrics may be less relevant. This has led to a wait-and-see approach until the transaction is completed.
What's in the News
- Electronic Arts is nearing a $50 billion deal to go private with a consortium including Silver Lake and Saudi Arabia's Public Investment Fund. This represents one of the largest leveraged buyouts in gaming history (WSJ).
- Shares of Electronic Arts surged 8% to $181.57 following reports of the imminent go-private transaction, before being halted for volatility (WSJ).
- EA's "EA Sports FC 25" has emerged as the best-selling game in Europe for 2025 so far, outperforming major releases from Ubisoft, Capcom, Nintendo, and Deep Silver (The Game Business).
Valuation Changes
- Fair Value Estimate has increased from $175.53 to $194.69 per share, reflecting a significant upward revision.
- Discount Rate has decreased slightly, from 9.13% to 8.93%. This suggests a modestly lower perceived risk or cost of capital.
- Revenue Growth expectation has risen from 5.11% to 5.50%. This indicates improved analyst confidence in future top-line performance.
- Net Profit Margin estimate has edged down from 17.92% to 17.47%. This points to a small anticipated decline in profitability.
- Future P/E (Price-to-Earnings) Ratio forecast has increased from 31.84x to 35.62x, signaling a higher expected valuation multiple for EA’s earnings.
Key Takeaways
- Strategic focus on live services and new games, leveraging events like the World Cup, aims to boost revenue and player engagement.
- AI integration and disciplined cost management are expected to enhance efficiency, profitability, and earnings growth.
- Revenue challenges stem from underperforming IPs, shifting portfolio focus, and macroeconomic pressures impacting consumer spending and live services growth.
Catalysts
About Electronic Arts- Develops, markets, publishes, and delivers games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide.
- EA's strategic focus on expanding live services and new game launches, such as Skate and Battlefield, is expected to drive revenue growth and foster player engagement.
- The relaunch of American Football and continued success of FC Mobile, particularly in fast-growing markets, are expected to significantly boost net bookings and player base.
- EA plans to leverage the 2026 World Cup as a major acquisition opportunity for its global football franchise, likely increasing net bookings and player engagement across platforms.
- Integration of AI in game development for deeper, more personalized experiences is expected to enhance operating efficiencies and potentially improve net margins.
- Ongoing share repurchase programs and disciplined operating expense management signal potential for earnings and margin expansion, supporting EPS growth.
Electronic Arts Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Electronic Arts's revenue will grow by 5.1% annually over the next 3 years.
- Analysts assume that profit margins will increase from 13.9% today to 17.9% in 3 years time.
- Analysts expect earnings to reach $1.6 billion (and earnings per share of $6.55) by about September 2028, up from $1.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.8 billion in earnings, and the most bearish expecting $1.3 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.8x on those 2028 earnings, down from 39.9x today. This future PE is lower than the current PE for the US Entertainment industry at 39.3x.
- Analysts expect the number of shares outstanding to decline by 4.6% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 9.13%, as per the Simply Wall St company report.
Electronic Arts Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The decline in net bookings for FY '25, particularly influenced by factors like softness in Apex Legends and the negative impact of slate timing, reflects potential vulnerabilities in EA's revenue stream from underperforming IPs.
- The projected 40% year-over-year decline in Apex Legends net bookings could significantly impact EA's live services revenue, which forms a substantial part of overall earnings.
- Concerns over macroeconomic conditions and their possible effects on consumer spending, particularly in discretionary categories such as gaming, pose risks to EA's future revenue growth and profitability.
- The ongoing structural transition in EA's portfolio, shifting away from traditional full-game sales towards live services and blockbuster storytelling also indicates potential challenges in maintaining revenue consistency during this period.
- Despite attempts to rejuvenate the FC franchise, challenges related to player migration from older titles to new releases highlight a risk to EA's future growth in terms of player engagement and monetization.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $175.533 for Electronic Arts based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $210.0, and the most bearish reporting a price target of just $148.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.7 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 31.8x, assuming you use a discount rate of 9.1%.
- Given the current share price of $166.04, the analyst price target of $175.53 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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