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Electronic Arts Inc. (ERTS) Message Board

  • investora2z investora2z Jul 7, 2013 6:38 AM Flag

    Consistency in performance is required

    The stock has done well over the past one year for the investors with excellent returns. It has doubled on a 52 week basis and is now trading at the highs. Over the longer term, it has not done much and is down by 45% over the last 5 years. The fundamentals have been inconsistent with fluctuations in revenue and the net income / loss. High production / development costs seem to be one major factor in poor operating margins. The revenue growth is likely to come more from mobile and online games. These segments can also help improve margins and bring in more consistency in the performance of the company. However, competition in these segments is immense and will also increase over time. Already several players like Activision Blizzard (ATVI) & Zynga (ZNGA) are strong competitors, and new players like MGT Capital Investments (MGT) are about to enter the field. Due to the losses suffered in two of the past four quarters, Electronic Arts is trading at high valuations if ttm earnings are considered. The P/E is around 77 and the price to book is over 3. The forward P/E of 17 indicates expectations of good performance over the next few quarters. The leverage is reasonable with debt of around $560 million as on March 31. It had around $1.68 billion in cash on the same date. The deals with Hasbro (HAS) for development of mobile games, and with Walt Disney (DIS) for developing games also helped the stock gain some strength. However, not all are convinced that these deals would surely benefit the company in the long run. In any case, the company needs to bring in games after putting more thought, has to lower its costs and take measures to deliver a more consistent performance over the longer term.

85.00-0.20(-0.23%)Sep 28 4:00 PMEDT