Electronic Arts
What Fools say:
Here's how EA's Motley Fool CAPS rating stacks up against some of its peers and competitors:
|
Market Cap (millions) |
Trailing P/E Ratio |
CAPS Rating |
|
|---|---|---|---|
|
Activision Blizzard |
$15,600 |
89.1 |
***** |
|
Electronic Arts |
$8,500 |
N/A |
**** |
|
Konami |
$2,400 |
12.8 |
*** |
|
Take-Two Interactive Software |
$880 |
8.1 |
**** |
|
THQ |
$500 |
N/A |
** |
Data taken from Motley Fool CAPS on 10/29/2008.
CAPS All-Star ikkyu2, who owns the highest score ever amassed on an EA rating, is critical. "Great company, great products, questionable management, lousy margins, poor profitability, terrible valuation. Thumbs down."
But fellow All-Star DemonDoug disagrees. "Hollywood in the 1930s was booming. Video games today are what movies were in the 1930s. Electronic Arts is the No. 2 independent videogame company (No. 1 is ATVI), and with stellar perennial winners," it should keep making money.
What management does:
EA has not made a quarterly profit since Christmas 2006. However, given the split between crummy net income and jumpy but fairly decent cash flows, that might simply be smart accounting since the tax man cares only about the income statement. Also, don't forget that the sales trend is picking up steam.
|
3/2007 |
6/2007 |
9/2007 |
12/2007 |
3/2008 |
6/2008 |
|
|---|---|---|---|---|---|---|
|
Gross |
60.8% |
60.6% |
56.8% |
49.9% |
50.8% |
52.5% |
|
Operating |
1.8% |
(0.4%) |
(10.2%) |
(13.7%) |
(6.7%) |
(3.4%) |
|
Net |
2.5% |
0.8% |
(6.6%) |
(12.3%) |
(12.4%) |
(10.2%) |
|
FCF/Revenue |
7.1% |
3.0% |
0.5% |
4.6% |
6.9% |
3.4% |
|
Growth (YOY) |
3/2007 |
6/2007 |
9/2007 |
12/2007 |
3/2008 |
6/2008 |
|---|---|---|---|---|---|---|
|
Revenue |
4.7% |
2.5% |
(5.7%) |
1.0% |
18.6% |
32.6% |
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
DemonDoug has a good point: EA owns some of the biggest franchises in video game history. Sports games like Madden NFL and Tiger Woods PGA have no serious competition. The Sims, with its many sequels and expansions, is the best-selling game series ever in the world of PC games. Up-and-comers like Rock Band and Spore seem destined to sprout profitable sequels for years to come, too. The occasional DRM-related backlash may have created a piracy beast, but it sure didn't kill official sales. Even the Warhammer franchise is off to a good start.
And yet EA is playing second fiddle to Activision in the long run, and to the Nintendo (OTC: NTDOY.PK) juggernaut in October. It's dangerous to draw long-term conclusions from the seasonally weak summer quarters, but EA's stock price has been hit harder than most recently and the shares sure look cheap. In balance, this is a giant in the gaming industry that won't go away for a long time and will get in the occasional home run among its many three-and-outs. The unusual value-based opportunity seems to outweigh the minimal risks.
