spoke to an analyst today in NYC who manages big money at a small-cap fund
apparently Disney corporate went to Electronic Arts with a $23 bid a few years ago when the stock was trading under $18.
Obviously ERTS turned down the offer, which was a smart move in light of current business momentum.
But the point is, it shows DIS has wanted this asset in the past, and potentially in the future.
I've written DIS that ERTS is a strategic asset to own for digital media distribution capabilities. Their legal department wrote back saying they can't consider outside advice or suggestions - which was strange - they could have easily ignored my email...
ERTS is a $40 asset if you really pick it apart and do a sum-of-parts analysis.
Funny that if DIS bought ERTS they could do that in real life. DIS likes to acquire strong IP - it is what they have done with Pixar and Marvel. EA has some nice IP and I do see possible synergies, such as movies or attractions based on EA IP. Also, the combination of EA/Playfish/Popcap with Disney/Playdom would be a formidable competitor to Zynga in the social gaming space. Still, I am not really expecting any takeover activity with EA.
I agree with your sum of the parts point. I recently figured that based on valuations for social and mobile companies such as Zynga, Gameloft and Glu Mobile, EA's social gaming business could be valued around $5 billion and EA's mobile gaming business could be valued around $1 billion, as stand alone businesses. Add in the traditional publishing business and EA's over $1 billion in cash and it should be worth more than the company's current $7.4 billion market cap.
i think ERTS is capable of doing $1.0bn in Ebitda FY2013:
break it down as follows
EA Published $300mn Digital $300mn PopCap $100mn Star Wars $200mn Distribution $100mn Total $1000mn
if you apply a 10x multiple to that you get an enterprise value of $12.bn... add $1.8bn in cash and you get to $42/share. Same math for 12.5x Ebitda gets you to $51/share.
Are these numbers on the bullish side, yes. I think PopCap and StarWars are the wildcards. But if you look at momentum with Madden/NCAA, Sims on PC and social, Battlefield 3, Star Wars TOR pre-orders and iOS apps market share etc, I don't think this $1.0bn Ebitda estimate is out of control. The business has a lot of interesting levers it can pull with digital/mobile/social and they're going to expand their margins next 12-24 months. I think it's about 70-80% probable they hit the $1.0bn Ebitda mark on a revenue base of $4.3-$4.5bn FY2013.
Interested if anybody else has more specific math, estimates on ERTS outlook next year or two.