Electronic Arts Potential Value Creation Cycle: Analyst Opines on Upcoming Game Releases and Rising EPS

Credit Suisse analyst Stephen Ju maintained Electronic Arts Inc EA with an Outperform and raised the price target from $142 to $161. 

The analyst previewed EA's 1QFY24 earnings results. He updated his release slate assumptions, recalibrated in-game bookings, adjusted for FX, and rolled forward his valuation parameters to CY24. Ju's FY24 and FY25 adjusted EPS are now at $6.90 and $9.76 vs $6.70 and $9.88 prior. 

As he anticipated Battlefield will return in FY25, followed by new Star Wars games alongside the return of other franchises from EA's history – Mass Effect, Dragon Age, and The Sims – Ju believed it is entering a more extensive product development cycle and FY24 should mark trough EPS.

The analyst had modeled the following sequence over the next five years: Dragon Age (FY25), two iterations of Battlefield (FY25 and FY28), a follow-up to Star Wars Jedi (FY26), a Mass Effect sequel (FY26), a free to play The Sims 5, a Star Wars RPS (FY26), and a Star Wars RTS game (FY27). Also included are three Marvel-related releases – Iron Man and Black Panther have been announced. 

Adding these up, Ju expected EPS to rise from ~$7 for FY24 to over $12 by FY29 – the path may not be linear given the potential for shifting release dates, but the value creation cycle should be the same. 

In the near term, 1QFY24 will likely be driven primarily by Star Wars Jedi: Survivor. 

The analyst conservatively modeled 6 million units for FY24 (3.8 million units in 1QFY24). And each incremental million units should be ~$0.08 in EPS. 

Ju's focus remained on the ongoing multi-pronged secular shift for the industry with a continuous positive mix shift to digital, consumer adoption of microtransactions driving incremental monetization, and the expansion of EA's addressable market to target the global online user base.

Price Action: EA shares traded higher by 0.06% at $137.14 on the last check Monday.