![]() ![]() for $2.3 billion and Codemasters for $1.2 billion. Notice for instance that the company acquired Glu Mobile, Inc. With goodwill worth $4.25 billion, in my opinion, the management has a significant amount of expertise in the M&A markets. Source: Author With More Acquisitions And Successful Merger Integration, The Implied Share Price Is Equal To $255 The current market price is equal to $129, so I would be expecting a lot of demand for the stock when investors learn about the company’s future FCF: With a terminal free cash flow of $3 billion, the implied share price is equal to $175. Putting everything together, I obtained the sum of free cash flow equal to $19 billion. The table below offers further information on the matter: Notice that I used a beta close to 0.94, cost of equity close to 7%, and cost of debt after tax equal to 3%. I decided to use a WACC of 6.7%, which is pretty much what other analysts are using. They don’t differ much from the market estimates: In my opinion, my figures are very moderate. I used close to 7% sales growth from 2025 to 2030, 18% CFO/Sales, and the FCF margin of 20%. We also are investing in a number of long-term service-based initiatives that we believe will allow us to better serve and deepen our engagement with our players, such as an infrastructure that will enable us to better deliver content that will resonate with players and provide more choice in the way that players connect with their games, with each other, and with new types of content, and our esports initiatives. Read the lines below and remember that more engagement with the players means more sales growth in the near future: Besides, more than 150 million players may use the company’s EA Sports games in 2022, and more than 33 million players may use FIFA 21.įinally, I also expect sales growth from the current initiative that was announced in the most recent annual report. In the base case scenario, I also expect that FIFA Online 4 may be successful in China as it was all over the world. If nothing very meaningful changes inside the company’s distribution channels, this level of sales growth is achievable. EA will deliver sales growth close to 7%, which is very moderate for EA. In the base case scenario, I don’t expect anything extremely extraordinary from the management. In my opinion, if the company continues to deliver amazing video games and digital content like in the past, sales growth will follow. Source: Market Screener With The Fifa Online Being Successful And Very Moderate Sales Expectations, The Implied Share Price Is Equal To $175 With many analysts believing that EA will report double-digit sales growth, it will be unlikely to see small sales growth in the near future: Besides, FCF/Sales are expected to be equal to 29%-28% in the same time period. Most analysts are expecting sales growth to be equal to 18%-7% from 2021 to 2024. Market estimates are also quite optimistic. The fact that the company’s net debt is negative will most likely be appreciated by investors: The company’s financial position is also very solid with an asset/liability ratio of 2x and senior notes worth $1.87 billion. With this cash in hand, the management will be able to invest in marketing and product design, which will most likely enhance sales growth: Source: Presentation Solid Balance Sheet With Beneficial Market Estimates For 2022-2024Īs of June 30, 2021, EA reports a significant amount of cash, $2.8 billion, with short-term investments worth $881 million. Obviously, net revenue and CFO are also expected to increase significantly in the next two years: The company expects an increase in the life services business segment as well as the full game segment. ![]() ![]() Notice that the company expects net bookings to increase by 37% from 2020 to 2022. With a portfolio of assets worth $12 billion, the most exciting is not the current amount of assets, but the expected growth delivered by the management. The image below offers more information on the matter: Fifa, Sims, Battlefield, and Madden are among EA’s successful digital assets. With that, I would like to mention some of the games because millennial readers would most likely remember them. I can’t really go through all the assets owned and currently being developed by EA. Source: Electronic Arts Home Page - Official EA Site EA's Expected Growthįounded in 1982, Electronic Arts develops games, content, and digital services for consoles, PCs, mobile phones, and tablets: In any case, like many other analysts, I believe that the company is a buy at its current market price of $124-$130. However, with new acquisitions and effective integration of Glu Mobile and Codemasters, I would be expecting the share price to trend north, up to $255. If Electronic Arts ( NASDAQ: EA) continues to sell FIFA as the company did in the past, I believe that EA’s share price is likely to be worth $174-$175. ![]()
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