Equity Research 23.09.2021 | Electronic Arts (EA)

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Electronic Arts (EA): A LEADING DEVELOPER IN SPORT INTERRACTIVE ENTERTAINMENT

 

 

Based in California, EA develops, publishes and distributes game contents and services for PCs, game consoles, mobile devices worldwide. EA operates in 4 segments:

  • Live Services: Subscriptions, advertising, esports and game software
  • Package Goods and Other
  • Full Game Downloads
  • Mobile Games

EA revenues were up by 2% in FY21 to $5.6 Bn. A still profitable year boosted by the Live Services (+10% y/y), its main source of revenue, giving flexibility to players spending their money online through subscriptions services and spending their time on certain titles for a longer experience, especially with sport titles such as FIFA, Madden NFL, NHL and UFC franchises

 

 

 

 

With strong results in 2021, 2022 is set to become another record year for EA. Lockdowns and self distiancing policies have accelerated the transition of many businesses online. The gaming industry has also thrived pushed by stay at home orders, the release of long-awaited AAA games along with the new next-gens consoles: PlayStation 5 and Xbox Series X.

In the 1st quarter, results were above its guidance. EA achieved $1.55 Bn in net sales (above company guidance: $1.125), up 6% y/y (vs $1.4 Bn prior year), all highlighted by the release of eight new games with EA Sports being the leader in sports interactive entertainment with its yearly releases franchises such as Madden NFL ( 2.6 M players globally), FIFA (100 M players globally). Overall, the live services grew at a faster pace and is well engaged within communities and bringing new players each year. Games such as Apex Legends, Star Wars and the Ultimate Team sports games  were the main drivers.

In terms of the cash balance, it has been on the decline since 2019. Yet, operating activities remained quite strong and were rising, especially receivables from clients, which are converting much faster into cash to pay effectively its payables (30 days against 19 days, respectively). Also, investments remained constant, especially with the recent acquisition of Codemasters, a developer of autosport games such as the Formula One and Dirt franchise (~9 million, players), acquired for $1 Bn. A way for EA to grow its leading interractive sports catalogue and proceed to add another top games to its existing autosport game ( the Need for Speed franchise) and to capitalize on future earnings by, by bringing new players.

Additionaly, in terms of financing activities. The initiation for the 2021 period of the first dividend in the company’s history. In addition, the renewal of a share buyback program for another 2 years in which the EA already spent over $4 Bn since 2019, with the plan to grow its EPS over time.  

 

Ytd, EA has lost 9% of its share price. The share price (22/09/2021) closed at $126.40 per share.

Growth range: 3%-4% /  2022 Expected Revenue: $5.8 Bn

Share price forecast: $139

 

 

 

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