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Electronic Arts Inc. (ERTS) Message Board

  • covered_10 covered_10 Jul 2, 2007 8:19 AM Flag

    LEH upgrades

    Electronic Arts Initiated At Overweight At Lehman Brothers
    4:28 AM ET - Dow Jones News
    > Dow Jones Newswires 07-02-07 0427ET
    Copyright (c) 2007 Dow Jones & Company, Inc.

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    • From FY 07 Q4 results: (under liabilities, not assets - in accounting, because revenue is a credit to the P&L, you need to debit the balance sheet, so you are either in a contra asset account or liability)...regardless

      "Deferred net revenue - packaged goods and digital content 23"

      So $23M, not $25M...sorry for the late response, to be honest I was going to respond that we should really skip the argument on valuation and really just trade this thing...it bounces between $47 and $52 on no news...it will probably trade up into earnings, but I do beleive miss, and guide down...

    • Where did you go tcw95112...? Here's a re-post of my last reply to you (in case you missed it):

      <<There has abeen tons of talk about this deferred revenue stream, but if you read their SEC realted and their balance sheet ($25M balance in last quarter's results), you will see it no where near, nor will it ever get to $500M is extra revenue.>>

      --> I'm not sure where you�re going here. You started out talking about revenue but then you mentioned 25M on the balance sheet. The only line with 25M on the balance sheet is the "Deferred Long Term Asset Charges" line. Regardless, in considering the deferred rev, you need to be looking at the "income statement" for the 31Dec06 qtr NOT the 31Mar07 balance sheet numbers. Why? 1)Because the Dec qtr is where most of the deferred rev will come from. 2)qtrly rev is displayed on the income statement (I know you are aware of this so I don't know why you went to the balance sheet). It shows rev's of 1.28B (more than enough to realistically see 500M in deferred rev going to the next FY). Because I like it when people give links to their info, here's a link to EA's saying the following: "Given the significance of the holiday season, this means that likely more than $400 million in revenue that would have otherwise been reported in fiscal year 2008 will now be deferred and recognized in fiscal year 2009." http://media.corporate-ir.net/media_file...

      You saying "it will never get to 500M" tells me that you are "A LITTLE" off in all your estimates. You may want to recalculate your figures using 500M of deferred rev because will add a lot to your eps for the entire yr. You still probably won't get to my FY09' eps because you are looking for less growth than I am and I doubt you are factoring on Spore being as big a hit as I expect it to be (not to mention the growth I expect from rev associated with their acquisitions and investments. The currency exchange rate should also stay in EA's favor)..

      Good Investing to all!!!

      P.S. Thanks for posting your numbers; I'm using FY09' rev of 4.6B +/- .25B which puts me between .6 and 1.35B higher than you. 500M of my figure is deferred from FY08'.


      Sentiment : Strong Buy

    • <<There has abeen tons of talk about this deferred revenue stream, but if you read their SEC realted and their balance sheet ($25M balance in last quarter's results), you will see it no where near, nor will it ever get to $500M is extra revenue.>>

      --> I'm not sure where you�re going here. You started out talking about revenue but then you mentioned 25M on the balance sheet. The only line with 25M on the balance sheet is the "Deferred Long Term Asset Charges" line. Regardless, in considering the deferred rev, you need to be looking at the "income statement" for the 31Dec06 qtr NOT the 31Mar07 balance sheet numbers. Why? 1)Because the Dec qtr is where most of the deferred rev will come from. 2)qtrly rev is displayed on the income statement (I know you are aware of this so I don't know why you went to the balance sheet). It shows rev's of 1.28B (more than enough to realistically see 500M in deferred rev going to the next FY). Because I like it when people give links to their info, here's a link to EA's saying the following: "Given the significance of the holiday season, this means that likely more than $400 million in revenue that would have otherwise been reported in fiscal year 2008 will now be deferred and recognized in fiscal year 2009." http://media.corporate-ir.net/media_files/irol/88/88189/2_01_07_ERTS.FAQ.Final.pdf

      You saying "it will never get to 500M" tells me that you are "A LITTLE" off in all your estimates. You may want to recalculate your figures using 500M of deferred rev because will add a lot to your eps for the entire yr. You still probably won't get to my FY09' eps because you are looking for less growth than I am and I doubt you are factoring on Spore being as big a hit as I expect it to be (not to mention the growth I expect from rev associated with their acquisitions and investments. The currency exchange rate should also stay in EA's favor)..

      Good Investing to all!!!

      P.S. Thanks for posting your numbers; I'm using FY09' rev of 4.6B +/- .25B which puts me between .6 and 1.35B higher than you. 500M of my figure is deferred from FY08'.

    • Actually, the stock was priced for perfection in the Jan-Mar 05' time period when it was in the mid-upper $60's. "IF" all the consoles would have released on time, with sufficient quantities, and with the same leadership hierarchy that existed in the previous cycle (Sony, MSFT, NTDOY) the stock would be in the high $70's to low $80's with an announced stock split pending today. Since that "perfection" did not occur the stock is now down 25-30% from those levels.

      ERTS is in no way currently priced for "perfection". Here's perfection: HUGE Ad rev(at least 3-4 times current estimates), Spore becoming a top 3 franchise going fwd for the next 3 yrs, Rock band doing at least as good as GH over the next 3 yrs, dominating top 10 charts for next 3 yrs, Spielberg games exploding, casual and Asian gaming investments exploding to upside, etc... THAT is perfection. Priced for perfection, it would be trading in the upper $65-75 range. Priced for a decent outlook (but not perfection) it would be in the $55-65 range.

      IMO, over the next 3 months, anything under $55 is under priced and a "Strong Buy", $55-60 is a "Buy", and $60-$65 is a hold. I'd take some profits above $65 and wait for a possible pullback below $60 before replacing those shares. As a fwd guess, I would say that in 6 months all of my buy/hold price points will have $5 added to them.

      Your right- BUT some of you ae trying to make this more complicated then it needs to be. The stock had a little run-up going into E3, then a sell-off on E3 (all week minus one day). You had people that just bought the stock with hopes t would get a pop - it did, but was a pre-E3 pop.

      When you look at the history of this stock it hits its 52 week high every November going into Christams. ERTS has a number of titles coming out a bit early and it's MONSTER hit Madden 08 will be out in August.

      Read the interview with the CEO on the front page. He is expanding the game list to more people. A great idea because many titles will go to the family friendly Wii. This is a great lan. Skate and Rock band are going to be big hits. This is the hands down leader and priced cheap here. The sector is in its usual lag period, which is the time to buy. I don't know when it will happen, but soon the big mney will come in and drive this price up in the $54-58 range in no-time. The stock has been stalled here in the $49-48 range for some time. When you consider the risk/reward, it is a no-brainer.

      To the young guy figuring out pricing to perfection and the P/E etc. -Stocks simply don't trade like that.

    • What is your FY'09 *sales* number...

      Here is where I at at for FY '08 and FY '09

      FY 08: 3.25B (up 150M from '07)
      Q1 FY '08: 375M (about 7% down from FY '07 Q1)
      Q2 FY '08: 780M (flat - way below analyst's expectations...they have zero hits....this is a gift, and sould be lower than $780M )
      Q3 FY '08: 1.4B (10% up)
      Q4 FY '08: 700M

      FY '09: up 10-15%, so call it: $3.5 - $3.75B

      That implies maybe 80 cents this year (their cost structure is much higher than last year's), and call it $1.25 next year..

      BTW, forward P/E calaulcted on FY '09 is generous..the 12 month forward P?E is closer $1 right now given their impending loss. Half the analyst base has not adjusted Q2 yet, nor the rest of the year...

      There has abeen tons of talk about this deferred revenue stream, but if you read their SEC realted and their balance sheet ($25M balance in last quarter's results), you will see it no where near, nor will it ever get to $500M is extra revenue. They are not defferring revenue on the service fee of online games, but rather amortizing the revenue received for the sale of the game packaging/disk/etc. This is over the life of the game, which they have determined to be 6 months. That means to have a 500M defferral into FY 09, they would need to sell 10M-15M games (online games) in most probably December. That would be half of this last years fiscal Q# ($1.2B)....your numbers are too high...

      Don't get me wrong this is a buy at some point, but it is a sell into its Q1 '07 results announcement...they will lower guidance...

    • Read this one. Not the previous one

      <<we must have vastly different expectations of sales...I see probably 2008 being somewhat larger than this year, but this year flat or down from from last... profitability sufferring due to the number of platforms supported...>>

      --> When you say 2008 somewhat larger than this year you must mean FY 09' which ends on 31 Mar 09 because "this year" (FY 08') ends 31 Mar 08'. Yes, I see FY09' (what you call next year) as significantly better as opposed to your "somewhat larger". Significantly better means 50-80% higher than this year (FY08'), for a grand total of $2.25. Remember, due to EA�s new accounting format for online enabled games, FY09� will be the first FY to have a significant percentage of revenue pushed into it from the previous yr�s X-Mas game sales. This will cause 400-600M in rev to be realized in FY09� rather than in FY08� as would have occurred in the past (prior to the accounting change). Did you take this into account in your estimates??? If not you might want to start getting long some calls or sell some long term puts because it should definitely change your estimates. If you did take it into account then I still think you are just plain wrong (time will tell).

      Additionally, All of Spore�s rev will be realized in FY09�. I also expect rev�s from Ads, casual gaming, Asian gaming, and online gaming to increase dramatically and I�m sure the return on their Ubisoft investment will be nice.

      $2.25 eps means EA is trading at a 21.44 P/E based on FY09�. I think there is plenty of justification for EA to be trading closer to 28-32 X 09� eps which would be $63-72. At those prices I would rate the stock a hold or would be taking some profits as I indicated in a previous post with my price point recommendations. If it grows at the low end of my est. (50%) and your willing to pay 1X growth you get a stock price of $56.50 (1.13 (current avg fy08� eps est.) X 50 (my low-side growth rate est. from FY08� to FY09�). If you�re willing to pay 1.2X growth you get $67.80. As for PEG, I�m using 25% avg growth over the next 5 yrs which equals a PEG of 1.93. Yahoo�s using a 5yr growth rate of 21.3% (I�m 3.7% over that) in order to get their PEG of 2.27. The analyst est. page says they are using a growth rate of 19.04% but the math doesn�t work unless you use 21.3%.

      All I can say is I recommend not investing in any kind of strategy that requires EA to be < $60 anytime in FY09� in order to be profitable because (IMO) you will lose money.

      I welcome anyone else posting the figures they are using to come up with their valuations and future stock prices but I won't hold my breath....

      <<your expectations have got to be significantly different I would imagine....>>

      --> Definitely.

      Good Investing to all!!!

    • <<we must have vastly different expectations of sales...I see probably 2008 being somewhat larger than this year, but this year flat or down from from last... profitability sufferring due to the number of platforms supported...>>

      --> When you say 2008 somewhat larger than this year you must mean FY 09' which ends on 31 Mar 09 because "this year" (FY 08') ends 31 Mar 08'. Yes, I see FY09' (what you call next year) as significantly better as opposed to your "somewhat larger". Significantly better means 50-80% higher than this year (FY08'), for a grand total of $2.25. Remember, due to EA�s new accounting format for online enabled games, FY09� will be the first FY to have a significant percentage of revenue pushed into it from the previous yr�s X-Mas game sales. This will cause 400-600M in rev to be realized in FY09� rather than in FY08� as would have occurred in the past (prior to the accounting change). Did you take this into account in your estimates??? If not you might want to start getting long some calls or sell some long term puts because it should definitely change your estimates. If you did take it into account then I still think you are just plain wrong (time will tell).

      Additionally, All of Spore�s rev will be realized in FY09�. I also expect rev�s from Ads, casual gaming, Asian gaming, and online gaming to increase dramatically and I�m sure the return on their Ubisoft investment will be nice.

      $2.25 eps means EA is trading at a 21.44 P/E based on FY09�. I think there is plenty of justification for EA to be trading closer to 28-32 X 09� eps which would be $63-72. At those prices I would rate the stock a hold or would be taking some profits as I indicated in a previous post with my price point recommendations. If it grows at the low end of my est. (50%) and your willing to pay 1X growth you get a stock price of $56.50 (1.13 (current avg fy08� eps est.) X 50 (my low-side growth rate est. from FY08� to FY09�). If you�re willing to pay 1.2X growth you get $67.80. As for PEG, I�m using 25% avg growth over the next 5 yrs which equals a PEG of 1.93. Yahoo�s using a 5yr growth rate of 21.3% (I�m 3.7% over that) in order to get their PEG of 2.27. The analyst est. page says they are using a growth rate of 19.04% but the math doesn�t work unless you use 21.3%.

      All I can say is I recommend not investing in any kind of strategy that requires EA to be < $60 anytime in FY09� in order to be profitable because (IMO) you will lose money.

      I welcome anyone else posting the figures they are using to come up with their valuations and future stock prices but I won't hold my breath....

      your expectations have got to be significantly different I would imagine....>>

      --> Definitely.

      Good Investing to all!!!

    • <<we must have vastly different expectations of sales...I see probably 2008 being somewhat larger than this year, but this year flat or down from from last... profitability sufferring due to the number of platforms supported...>>

      --> When you say 2008 somewhat larger than this year you must mean FY 09' which ends on 31 Mar 09 because "this year" (FY 08') ends 31 Mar 08'. Yes, I see FY09' (what you call next year) as significantly better as opposed to your "somewhat larger". Significantly better means 50-80% higher than this year (FY08'), for a grand total of $2.25. Remember, due to EA�s new accounting format for online enabled games, FY09� will be the first FY to have a significant percentage of revenue pushed into it from the previous yr�s X-Mas game sales. This will cause 400-600M in rev to be realized in FY09� rather than in FY08� as would have occurred in the past (prior to the accounting change). Did you take this into account in your estimates??? If not you might want to start getting long some calls or sell some long term puts because it should definitely change your estimates. If you did take it into account then I still think you are just plain wrong (time will tell).

      Additionally, All of Spore�s rev will be realized in FY09�. I also expect rev�s from Ads, casual gaming, Asian gaming, and online gaming to increase dramatically and I�m sure the return on their Ubisoft investment will be nice.

      $2.25 eps means EA is trading at a 21.44 P/E based on FY09�. I think there is plenty of justification for EA to be trading closer to 28-32 X 09� eps which would be $63-72. At those prices I would rate the stock a hold or would be taking some profits as I indicated in a previous post with my price point recommendations. If it grows at the low end of my est. (50%) and your willing to pay 1X growth you get a stock price of $56.50 (1.13 (current avg fy08� eps est.) X 50 (my low-side growth rate est. from FY08� to FY09�). If you�re willing to pay 1.2X growth you get $67.80. As for PEG, I�m using 25% avg growth over the next 5 yrs which equals a PEG of 1.93. Yahoo�s using a 5yr growth rate of 21.3% (I�m 3.7% over that) in order to get their PEG of 2.27. The analyst est. page says they are using a growth rate of 19.04% but the math doesn�t work unless you use 21.3%.

      All I can say is I recommend not investing in any kind of strategy that requires EA to be < $60 anytime in FY09� in order to be profitable because (IMO) you will lose money.

      I welcome anyone else posting the figures they are using to come up with their valuations and future stock prices but I won't hold my breath....

      Good Investing to all!!!

    • we must have vastly different expectations of sales...I see probably 2008 being somewhat larger than this year, but this year flat or down from from last... profitability sufferring due to the number of platforms supported...

      your expectations have got to be significantly different I would imagine....

    • As far as this statement: <<This stock is price to high in the short, medium (thru Mar '08) and long term ('09-'10).>>


      Holly crap... I have no idea how you can possibly think you can justify a statement like that... You�re saying that the current price is too high all the way through 2010... Thinking that ERTS should be trading below the current level in 2010 is truly insane unless you are talking about after a split which you are not.

      Good Investing to all!!!

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