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Electronic Arts Inc. (ERTS) Message Board

  • trader_brad trader_brad Oct 31, 2011 10:36 AM Flag

    Upside of EA mgmt

    Some folks on this board (no I) like to bang on EA mgmt because EA isn't consistently profitable, etc.

    To their credit:
    *They've invested heavily in an MMO franchise with a kicker of the Mass Effect franchise (which they likely got for as a "free kicker")
    *They're investing in social gaming. (they were late)
    *They're investing in digital distribution. (they were late)

    It will definitely be interesting to see how things develop and gamers are better off that there may be a strong competitor to both Steam and Zynga.

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    • listen

      people are using P/E as a justification to say ERTS is 'expensive' at $24/$25

      which i think is false because I think market is wrong about FY March 2012 and FY March 2013 EPS

      I'm saying that issuing judgement about value based on those P/E ratios is IRRELEVANT because the EPS outlook/estimates are FALSE

      do you follow?

      P/E ratios themselves are not irrelevant, they're shorthand simplified DCFs

      the more important metric you really have to grasp with ERTS is EV/Revenue and EV/Ebitda

      on those two metrics ERTS is trading at all time lows

      do the work, spend time going through the Ks and Qs if you don't believe in strategic value of ERTS or the trajectory in improving margins, business model, then short ERTS

      or you can stick to day-trading and learn absolutely nothing about real finance or valuation

    • P.S. My point was you either say to use P/E or to ignore P/E, depending on which suits your argument at the time. That's inconsistent.

    • "yes in a takeout scenario i could see somebody pay 30x ex-cash for this asset that view hasn't changed"

      There isn't a takeout scenario, and if there was, 30x ex-cash is high teens, about 20% below the current price.

      Caveat - I do not ignore the "one time" expenses of acquisitions and restructuring which are actually core to ERTS' business model, not at all "one time" as they say every year.

      As for future earnings, they may be as vapor as the last year they promised great earnings, or the year before that, or the year before that. Giving a rich future valuation to something that never delivers in the present is foolish, IMO. Yeah eventually they might deliver, despite JR's presence, however a good chunk of that possibility is priced in already.

    • yes in a takeout scenario i could see somebody pay 30x ex-cash for this asset that view hasn't changed. that's not egregious and is a valuation you'd need to get a deal like ERTS done.

      what i'm trying to say is people should stop calling this stock 'expensive' or 'priced to perfection' when it's really not

      people have been saying it's expensive all the way up from $15 without really believing in the catalysts that are ahead of ERTS given recent shift in business model/strategy

      **erratum above TTM should be LTM (last 12 months)

      thanks

    • So today you're calling for $40 and saying,

      "stop looking at irrelevant TTM p/e ratios it's all just misleading everybody"

      Whereas five months ago you were saying,

      "my upside for this is $43.00 which is 30x P/E EX-CASH for FY 2012 EPS of $1.20"

      So originally you were calling for a sky high (30x, LOL) valuation based on P/E, and now that earnings aren't delivering (suprise, thanks JR!), you're saying people should ignore P/E and just bid it up anyway.

    • Lots of positives for sure, but the general market and economy have a ways to go before they get better and all stocks may suffer. Also VG are discretionary expenditures and lots of people doubt their longevity. This stock has not seen the prices you are suggesting in over 3 years. Doesn't mean it won't, but it's not going to get there in this market with a couple of titles hotter than they had in the past. MW3 might knock the wind out of BF3 sales in a week, you never know. I think this is a good trading stock anywhere in the 20's, low to high, long to short and back again until there is a breakout below or above that range IMO.

    • it's the best title launch in EA's corporate history

      i see that as a positive

      oh BTW, FIFA 12 just happened to be the best selling video game sports title in history

      that's hardly negative

      if EA manages to do record revenue in March 2013 fiscal year while improving operating margins past 15%...

      the stock will be at $40 - it's not that complicated

      stop looking at irrelevant TTM p/e ratios it's all just misleading everybody

      look at EBITDA and OPERATING CASH FLOW growth last 24 months

      i think you all will be pleasantly surprised with the longevity of BF3 and what they're about to do accomplish with SWTOR and Mass Effect 3

      digital content really is a game changer for EA's bottomline 12-24 months out from here

      only four companies GLOBALLY that have over $1.0bn in digital sales. EA is one of those.

      guess the other three?

      one is already controlled by Vivendi, one is crap and about to go public, and the fourth is a mega cap called Apple.

      that's why this asset is so strategic with a 3-5 year view. nobody can match their IP and distribution capabilities. it's only getting better by the quarter. at $35-$40 people are going to look back on $23-$25 range and say man, that was such a layup trade...

    • It's one title and EA is a big company, that's why.

    • In other news:

      Biggest launch EVER for EA

      http://www.vg247.com/2011/10/31/battlefield-3-becomes-biggest-launch-in-eas-history-5-million-copies-sold/comment-page-1/

      I fail to understand why market couldn't take this over $25 and keep it there

    • Really, that's your argument? Seriously? Okay then, EA has had brilliant management. It is an industry thing to consistently make great products that are consistently consumed by the public but make no money. The video game business is a failed business, it is not possible to make money in it.

      On the other hand, how did EA manage to build up a $2 billion positive cash balance? No you are right, because at sometime in ATVI's history they lost money in a quarter, it is an industry thing as to why EA fails to make money quarter after quarter after quarter. Brilliant argument. You win. Or you are as dumb as a bag of hammers, your choice.

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