Electronic Arts Inc.EANASDAQ

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $248.44 per share(market-calibrated)

+23.5%

Upside to Fair Value

Current

$201.22

Pure Model

$249.10

Fair Value

$248.44

Bull Case

$326.33

Bear Case

$189.53

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

3.62%

Calibrated Growth

3.72%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $249.10.

What's Driving This Ratingfor EA

✓

CapEx already efficient

CapEx at 2.52% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 28.04% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 9.15% revenue growth, fading to 3.75% by Year 10. Revenue reaches $13.7B (vs $7.5B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $206.36/share (26.9x terminal FCF) while exit multiple gives $291.85/share (42.5x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 3.62% is close to the model's 3.75% (only 13bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 65.93% indicates efficient cash generation. FCF reaches $3.0B by Year 10 (21.85% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.74

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.85%

Cost of Debt

Pre-tax Cost of Debt2.50%

Tax Rate30.00%

After-tax Cost of Debt1.75%

Equity Weight (E/V)95.96%

Debt Weight (D/V)4.04%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (95.96% × 7.85%) + (4.04% × 1.75%)

= 7.61%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$8.1B	$8.9B	$10.5B	$12.0B	$13.7B
EBIT	$2.3B	$2.5B	$2.9B	$3.4B	$3.8B
Tax	$685M	$747M	$882M	$1.0B	$1.2B
NOPAT	$1.6B	$1.7B	$2.1B	$2.3B	$2.7B
+ Depreciation	$415M	$453M	$535M	$610M	$699M
- Capex	$205M	$223M	$264M	$301M	$345M
- Δ NWC	$68M	$44M	$79M	$72M	$50M
Free Cash Flow	$1.7B	$1.9B	$2.2B	$2.6B	$3.0B
Discount Factor	0.929	0.803	0.693	0.599	0.480
Present Value	$1.6B	$1.5B	$1.6B	$1.5B	$1.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.0B

Terminal Growth Rate3.75%

WACC7.61%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$80.6B

PV of Terminal Value$38.7B

Exit Multiple Method

Year 10 EBITDA$4.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$127.2B

PV of Terminal Value$61.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$15.4B

PV of Terminal Value$38.7B

Enterprise Value$54.1B

(-) Net Debt$82M

Equity Value$54.1B

Shares Outstanding262M

Price per Share$206.36

Exit Multiple Method

PV of Projected FCFs$15.4B

PV of Terminal Value$61.1B

Enterprise Value$76.5B

(-) Net Debt$82M

Equity Value$76.5B

Shares Outstanding262M

Price per Share$291.85

Pure Model Fair Value

$249.10

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
5.61%	$324.87	$350.88	$372.83	$357.73	$343.34
6.61%	$270.05	$282.47	$299.24	$323.12	$343.34
7.61%	$233.32	$240.30	$249.10	$260.52	$275.94
8.61%	$205.97	$210.30	$215.53	$221.96	$230.06
9.61%	$184.30	$187.18	$190.54	$194.53	$199.35

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$189.53

-5.8% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 0.93

Base Case

$249.10

23.8% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 0.74

Bull Case

$326.33

62.2% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.63

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth9.15%

Year 3 Revenue Growth5.23%

Year 5 Revenue Growth8.17%

Year 7 Revenue Growth6.40%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin28.04%

Tax Rate30.00%

Historical Capex / Rev2.52%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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