The gaming industry has undergone major shifts in recent years. During the COVID-19 pandemic, the sector experienced a surge in growth as consumers spent more time at home. But that momentum faded once lockdowns lifted, leading to a drop in spending on games and consoles. Ongoing economic headwinds—such as inflation and broader financial uncertainty—added further pressure, contributing to widespread layoffs, studio shutdowns, and canceled projects throughout 2024. Despite these challenges, analysts remain hopeful about a rebound, driven by the anticipation of several high-profile game releases on the horizon.
Electronic Arts just reported its fiscal year 2024 results, and there’s a lot to unpack here.
Revenue came in at $7.5 billion, which represents just 2% year-over-year growth. That’s a noticeable deceleration for a company that has historically been a reliable compounder of revenue and free cash flow. This slowdown isn’t entirely unexpected—back in January, EA’s management signaled to investors that they were dialing back expectations for fiscal 2025, citing softer growth across core franchises and macro uncertainty in consumer spending.
But that was before another major headwind entered the picture—new tariffs that are expected to directly impact the cost structure and demand dynamics across the gaming industry. These tariffs—part of broader U.S. trade policy shifts—will likely increase the cost of producing gaming consoles, most of which are assembled outside the U.S., in countries like China and Vietnam.
As these tariffs are implemented, companies like Sony, Microsoft, and Nintendo will face rising costs on hardware like the PlayStation 5, Xbox Series X, and Nintendo Switch. These consoles are central platforms for EA’s games, so anything that reduces demand for these systems has a downstream impact on software developers like EA.
Depending on how the tariffs are finalized, consumers could see console prices rise by $100 to $200—a significant jump that could push a segment of the customer base out of the market altogether, or at least delay purchases. For next-gen hardware currently in development—like the Nintendo Switch 2, which had reportedly paused pre-orders due to tariff-related uncertainty—this could cause ripple effects across the industry.
Is EA Still a Buy?
So the big question now is this: With EA stock down significantly and facing clear macro pressures, does this still make sense as an investment? Or is the risk profile simply too high?
In this video, I’m going to evaluate EA from the ground up—looking at its long-term performance, underlying business model, cash generation, and the impact of secular trends like digitalization. Then I’ll walk you through my proprietary discounted cash flow valuation to determine whether the current market price represents an opportunity or a value trap.
Long-Term Performance and Structural Shifts
Now, looking at EA’s trailing twelve-month revenue, we see a long-term uptrend. Over the past decade, EA has successfully transitioned from a physical media business to a largely digital-first operation. That has allowed for margin expansion, more predictable cash flows, and better monetization of its intellectual property through in-game purchases, downloadable content (DLC), and live services.
However, over the last 2–3 years, EA’s revenue has hit a plateau. For the most recent twelve months, revenue stood at $7.347 billion, down from peak levels. That flatlining coincides with the broader maturation of the current console cycle and increasing competition in both traditional gaming and mobile.
Despite this stagnation, EA remains a highly profitable business. It generated $2 billion in operating cash flow last year, meaning it converts a large percentage of its revenue into cash. That kind of cash efficiency is increasingly rare in today’s tech-driven entertainment landscape.
The Tariff Impact vs. Digital Tailwinds
Here’s where the long-term picture gets more interesting.
Yes, tariffs are a serious headwind. If console sales take a hit, EA’s unit sales and engagement numbers could decline—especially for titles tied closely to console ecosystems like Madden NFL, FIFA (now EA Sports FC), and Battlefield. And unlike broader economic slowdowns, tariffs don’t create evenly distributed pain—hardware makers get hit first, and software publishers like EA get hit on a lag.
But counterbalancing that is a powerful secular trend: the digitalization of gaming. Over the past decade, EA has drastically reduced its reliance on physical discs. Gamers no longer have to buy a boxed copy from a retailer. Instead, they can download games directly to their consoles, often with enhanced content and seamless updates.
This shift to digital has improved EA’s gross margins, reduced costs associated with packaging and distribution, and created opportunities for ongoing monetization through live services, battle passes, and microtransactions.
And unlike console hardware, these digital revenues aren’t impacted by shipping delays, retail constraints, or the rising costs of physical goods. This trend remains a long-term tailwind that should continue to support margin expansion.
Financial Health and Valuation
Now, let’s look under the hood. EA’s balance sheet is in great shape.
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The company has a market cap of $33.7 billion
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Carries just $1.9 billion in debt, giving it a low leverage profile
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I’ve modeled a target capital structure of 15% debt and 85% equity
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Its cost of capital is approximately 8.8%, relatively low for a company in a cyclical, consumer-facing industry
In terms of valuation, I used a discounted cash flow model to determine what EA is actually worth based on the present value of its future cash flows. My analysis gives a fair value of $229 per share under my base case.
Even after lowering the long-term growth rate to reflect the negative impact of tariffs and slower industry growth, the fair value still comes in at $194 per share, versus a current market price of around $133. That represents upside of roughly 45% even under more conservative assumptions.
Another useful metric is the forward P/E ratio, which now sits at 15.7x earnings—the lowest level in the past three years. That compares to a forward multiple closer to 20x before the tariff news hit.
Market Sentiment
On March 24, Benchmark analyst Mike Hickey raised his price target for Electronic Arts Inc. (NASDAQ:EA) from $140 to $160, while reiterating his “Buy” rating. Hickey pointed out that a potential delay in the release of Grand Theft Auto VI could work in EA’s favor. If GTA VI is pushed to early 2026, Electronic Arts would have the opportunity to dominate the critical fourth quarter of 2025, a key window for blockbuster game launches.
With less competition during the holiday season, EA’s Battlefield franchise could capture more consumer attention and generate stronger sales. Hickey also noted that Rockstar Games’ longer development timeline for GTA VI might allow the studio to avoid the widely criticized practice of "crunch," potentially resulting in a higher-quality game with stronger long-term performance.
Final Thoughts: Risk vs. Reward
So yes—this business is riskier today than it was two weeks ago. Tariffs introduce new uncertainty, and management has already warned that revenue growth will slow. But from a long-term investor’s perspective, this might be exactly the kind of dislocation that creates opportunity.
EA has a strong franchise portfolio, healthy margins, a fortress balance sheet, and benefits from long-term secular tailwinds that aren’t going away anytime soon. The stock is trading at a meaningful discount to intrinsic value, both on a cash flow and earnings basis.
My take: Electronic Arts is a buy.
But as always, this is not financial advice. Make sure to do your own due diligence, and think carefully about your investment horizon and risk tolerance.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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