Thursday, May 20, 2010

From The Wayback Machine

When I was writing about Sony yesterday, I remembered something I wrote about EA in the distant past. From January 19, 2005:
EA can't keep growing at its current rate. It's much, much easier for a company to go from one billion to three billion in revenue than it is to go from three billion to nine billion. At some point, scale just eats you up. And as your growth goes down, so does your P/E, and as that happens, the stock price starts to deflate. I believe it's entirely possible that this $65 stock price might be as high as EA gets, at least for the next several years.

Electronic Arts revenue history (fiscal year, revenue in billions, growth rate):
FY01: 1.322B
FY02: 1.725B, 30.5%
FY03: 2.482B, 43.9%
FY04: 2.957B, 19.1%
FY05: 3.129B, 5.8%
FY06: 2.951B, -5.69%
FY07: 3.091B, 4.74%
FY08: 3.665B, 18.6%
FY09: 4.212B, 14.92%
FY10: 3.654B, -13.25%

Average annual growth from FY01 to FY04: 30.7%
Average annual growth from FY04 to FY10: 3.6%.

The stock did close at $68.12 on February 4, 2005. It dipped below $65 three days later. It occasionally traded above $60 for the next two years (most recently in October of 2007), and was trading at $17.18 at mid-day on Monday (when I wrote this post).

I'm not putting this up because it was a smart call. It was an easy, easy call. It's just that no one wanted to believe it back then, because of the implications it had for the larger gaming industry as a whole.

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