Is There More Upside For EA Stock?

Core Viewpoint - Electronic Arts reported mixed Q3 fiscal 2025 results, with revenues missing expectations but earnings exceeding estimates, leading to a lowered full-year outlook and an accelerated share repurchase plan [1][3]. Financial Performance - Q3 revenues were $1.9 billion, down 3% year-over-year, attributed to lower contributions from EA Sports FC Ultimate Team and Apex Legends, alongside softer demand for Dragon Age [3]. - Net bookings for the quarter were $2.22 billion, below the consensus estimate of $2.32 billion, while earnings per share were $1.11, slightly above the expected $1.08 [1][3]. - The operating margin expanded by 120 basis points to 20% in Q3, and profit per share increased by 4% from $1.07 in the prior-year quarter [3]. Future Outlook - The company lowered its full-year outlook, expecting bookings between $7.0 billion and $7.15 billion and adjusted earnings per share between $6.25 and $6.65 for fiscal 2025, compared to $7.4 billion in bookings and $6.92 adjusted earnings per share in fiscal 2024 [3]. - The stock surged 8% post-announcement, driven by investor optimism regarding the $1 billion share buyback plan [4]. Stock Performance - EA stock has underperformed the S&P 500 index, with a -4% return since the beginning of 2024, while the S&P 500 is up 27% [2]. - Over the last four years, EA stock returns were -8% in 2021, -7% in 2022, 13% in 2023, and 7% in 2024, indicating a lackluster performance compared to the index [4]. Valuation - The estimated valuation for Electronic Arts is $142 per share, approximately 9% above its current market price, based on a forward expected earnings multiple of 21x for 2025 [6].