'Star Wars' Will Continue To Generate Shareholder Value For Electronic Arts

• Amid significant volatility, Electronic Arts Inc. EA shares have lost 9 percent since October 29.
• Credit Suisse’s Stephen Ju maintained an Outperform rating for the company, while reducing the price target from $90 to $85.
• While Electronic Arts’ guidance was below expectations, Star Wars could continue to generate shareholder value, Ju stated.

Electronic Arts reported its 3QFY16 revenue at $1.80b, in-line with the Credit Suisse estimate. The company’s adj. EBITDA and adj. EPS came in at $789.0m and $1.83, ahead of the Credit Suisse estimates of $772.4m and $1.76, respectively.
Electronic Arts raised its FY16 guidance modestly, projecting revenue and adj. EPS at $4.52b and $3.04, respectively.

Currency headwinds, along with a higher mix of packaged goods sales versus digital for Star Wars on account of a higher gifting, resulted in the in-line 3QFY16 results and below-expectations 4QFY16 guide, analyst Stephen Ju said. He believes that the most significant takeaway from the quarter's report is “the establishment of Star Wars (sold 13mm units) as a new franchise that will continue to generate shareholder value.”

The revenue and adj. EPS estimate for FY16 have been reduced from $4.57b to $4.51b and from $3.09 to $3.03, respectively. The adj. EPS estimate for FY17 has been reduced from $3.67 to $3.42.

“For FY17 we lower our estimates as we flow thru greater FX headwinds, take a more conservative stance on Mirror's Edge, and ramp R&D dollars – we note that next FY will bring the return of Battlefield, Mass Effect, and potentially also Titanfall in one year,” Ju wrote.

The Outperform rating reflects a further positive mix shift to digital and the expansion of the company’s addressable market to target the global online user base, the analyst added.