Electronic Arts (NYSE: EA) has experienced a strong increase of over 25%, climbing from $130 in early 2022 to approximately $160 today. This performance aligns closely with the S&P 500 index during the same period. In spite of slow consumer spending, the company has managed to grow its sales consistently. To provide some context, total video game sales in the U.S. for 2023 reached $57.2 billion, reflecting a modest year-over-year growth of just 1%.
The significant 25% rise in EA’s stock since early 2022 can be attributed to several factors:
- A 30% growth in company revenues, increasing from $5.6 billion in fiscal 2021 to $7.3 billion currently;
- A 7% reduction in total shares, aided by about $5 billion spent on share repurchases;
- An 11% decline in the stock’s price-to-sales (P/S) ratio, decreasing from 6.8x to 6.0x, largely due to lower gaming demand.
Revenue growth at Electronic Arts has been propelled by its live services segment, particularly from the FIFA franchise. Additionally, recent acquisitions have positively impacted the company. EA not only reported rising revenues but also saw its operating margin improve to 20.9% in fiscal 2024, up from 18.6% in 2021. The company boasts a solid financial standing, characterized by a debt-to-equity ratio of 4.5% and cash comprising 24.3% of its assets, suggesting low financial risk.
Despite the overall revenue growth, the rise was limited to just 2% in fiscal 2024, reflecting a broader decline in gaming demand. Notably, average quarterly playtime has dropped significantly, falling 26% between 2021 and 2023. In the latest quarter, Electronic Arts announced total bookings of $2.1 billion, representing a 14% year-over-year increase in Q2’25, with earnings at $2.15 per share compared to $1.46 in the same quarter last year. The surge in sales is mainly due to increased demand for its sports games and The Sims. EA anticipates net bookings of $7.5 billion to $7.8 billion in fiscal 2025.
This year, EA’s stock has risen 20%, while the S&P 500 index has grown by 25%. However, looking deeper into recent trends shows that EA’s stock returns have not been consistently strong. The company faced declines of -8% in 2021 and -7% in 2022, before bouncing back with a 13% gain in 2023. In comparison, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has shown less volatility and outperformed the S&P 500 in every year within the same timeframe. What accounts for this? The HQ Portfolio has generally provided improved returns with lower risk when compared to the benchmark index, leading to a steadier performance overall.
In light of the current unsure macroeconomic conditions surrounding potential rate cuts, there are questions about whether EA might face challenges similar to those encountered in 2021 and 2023, possibly resulting in underperformance against the S&P over the next 12 months. Alternatively, could the stock see a strong rebound? Evaluating from a valuation standpoint, EA appears fairly priced, with a share valuation estimated at $165, consistent with its current market value. This valuation is based on a multiple of 21 times the expected earnings of $7.79 for EA in 2025, which aligns with the stock’s historical average price-to-earnings (P/E) ratio over the past five years. The sports franchises and The Sims are likely to continue driving EA’s sales growth; however, our outlook does not support raising this valuation multiple at this time. Investors looking to purchase EA stock may find it more advantageous to wait for a price dip.
While EA stock seems comparably priced, it is beneficial to consider how Electronic Arts’ Peers perform on important financial metrics. For additional valuable comparisons across industries, check out Peer Comparisons.
| Returns | Nov 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| EA Return | 9% | 20% | 113% |
| S&P 500 Return | 5% | 25% | 167% |
| Trefis Reinforced Value Portfolio | 6% | 21% | 801% |
[1] Returns as of 11/15/2024
[2] Cumulative total returns since the end of 2016
Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
