What To Expect From Electronic Arts’ Q4?

Electronic Arts (NASDAQ:EA) is scheduled to report its fiscal FYQ4 2022 results on Tuesday, May 10. We expect the company to likely post revenue in-line but earnings below the consensus estimate. While the company should benefit from its recent acquisitions, lower user engagement levels may impact its overall performance during the quarter. Furthermore, our forecast indicates that Electronic Arts

EA
stock is currently undervalued, as discussed below. Our interactive dashboard analysis on Electronic Arts Earnings Preview has additional details.

(1) Revenues expected to align with the consensus estimates

  • Trefis estimates Electronic Arts’ fiscal Q4 2022 revenues to be around $1.8 billion, in-line with the consensus estimate.
  • The company should benefit from its live services offering, primarily for FIFA and Apex Legends franchises.
  • Electronic Arts made multiple acquisitions over the last few quarters, including Playdemic and Glu, which will bolster the overall top-line growth.
  • That said, with economies opened up, people are venturing out of their homes to more public forms of entertainment, and this trend has resulted in a decline in user engagement levels for the gaming companies.
  • Looking back at Q3, the company reported revenue of $2.6 billion (including the change in deferred revenue), up 7% yoy, driven by high demand for its sports titles and Apex Legends. The performance of Battlefield 2042 was impacted due to some performance issues in Q3.
  • Our dashboard on Electronic Arts Revenues offers more details on the company’s segments.

(2) EPS likely to be below the consensus estimates

  • Electronic Arts’ fiscal Q4 2022 adjusted earnings per share is expected to be $1.38 per Trefis analysis, compared to the $1.45 consensus estimate.
  • The company’s adjusted net income of $913 million in fiscal Q3 2022 reflected marginal growth from its $892 million figure in the prior year’s quarter.
  • The company managed to improve its gross margins on the back of a solid digital mix in its sales in Q3, and this trend is expected to continue in the near term.

(3) EA stock looks undervalued

  • We estimate Electronic Arts’ Value to be around $168 per share, which is 46% above its current market price of $115.
  • This represents a forward P/E multiple of 23x for the company based on our adjusted EPS forecast of $7.34 for fiscal 2023.
  • That said, if the company reports upbeat Q4 results and FY2023 guidance better than the street estimates, it is likely that the P/E multiple will be revised upward, resulting in even higher levels for EA stock.

While EA stock looks undervalued, it is helpful to see how Electronic Arts’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Walmart VMware

VMW
.

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