Electronic Arts Inc. (ERTS)

Discount cash flow analysis

Sell Overvalued by 69.4%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Electronic Arts Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2008 2009 2010 2011 2012 2013 2014 2015
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $25.67 $25.39 $25.12
Terminal Growth% 0 $25.77 $25.48 $25.21
  +1% $25.86 $25.58 $25.30

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $16.90 (overvalued by 79.68%) - 12 months ago
  • KaKTy3 created a new valuation of $21.93 (undervalued by 17.78%) - over 8 years ago
  • KaKTy3 created a new valuation of $24.23 (undervalued by 30.13%) - over 8 years ago
  • SethWellbourne created a new valuation of $16.83 (overvalued by 7.43%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $25.48 (undervalued by 8.89%) - almost 9 years ago
  • GordonGekko created a new valuation of $46.66 (undervalued by 0.02%) - 9 years ago

Comments

Running The Numbers - intrinsic valuation of Electronic Arts ($ERTS)

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/11/running-the-numbers-intrinsic-valuation-of-electronic-arts-erts/

Assumptions

Revenue: Reuters aggregates 21analysts covering $ERTS and these analysts have mean estimates of 2009 and 2010 revenues of US$5.1 billion and US$5.8 billion respectively. For our analysis we have used US$5.0 billion in 2009, US$5.65 billion in 2010 and US$6.15 billion in 2011.

Profitability: We have used an EBITDA margin of 11.5% in 2009 rising to 12.5% in 2011. Reuters has $ERTS‘s EBITD margin at minus 6.9% last year and averaging 11.8% over the last five-years.

Capital Expenditure: We have assumed capital expenditures of US$150 million per annum moving forward.

Discount Rate: 11.0%.

Terminal Growth Rate: 4.0%.

By TheCrunchBlog, almost 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 23,500
Net Debt (Long-term borrowings less cash): -3,016
Equity Value: 7,460
Number of Shares Outstanding: 318,000,000
Calculated value per share: $25.48

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.