Yahoo Finance Electronic Arts (EA) Down 5.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Electronic Arts (EA). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Electronic Arts due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Electronic Arts’ Q3 Earnings Jump, Lowers Bookings View
Electronic Arts reported third-quarter fiscal 2023 earnings of 73 cents per share, which jumped 217.4% year over year.
Revenues increased 5.1% year over year to $1.88 billion, driven by strength in EA SPORTS portfolio and multi-platform live services business.
The Zacks Consensus Estimates for earnings and revenues were pegged at $3.05 per share and $2.49 billion, respectively.
Net bookings for the third quarter were $2.3 billion, down 9% or 5% in constant currency (cc) year over year. Live services net bookings were down 1% year over year, or up 3% in cc. Growth at constant currency was driven by strength in FIFA with rapid growth occurring in FIFA Online 4 and FIFA Mobile.
Quarter Details
EA’s full-game revenues (33.1% of total revenues) increased 1% year over year to $622 million. Full-game download revenues increased 6% year over year to $400 million. Revenues from packaged goods declined 8% year over year to $216 million.
Live services and other revenues (66.9% of total revenues) rose 7.3% year over year to $1.25 billion.
Based on platforms, revenues from consoles increased 1% year over year to $1.13 billion in the reported quarter. Revenues from PC & Other increased 16% year over year to $374 million. Revenues from the mobile platform increased 6% year over year to $277 million.
Gaming Metrics
The Sims welcomed more than 10 million new players into the community during the quarter, with daily active users, weekly active users and monthly active users, all up double digits on a year-over-year basis.
EA rolled out two AAA titles, NHL 23 and Need for Speed Unbound and provided 128 content updates across 36 titles during the quarter.
Madden NFL 23 had a solid holiday quarter driven by Ultimate Team and Madden NFL Mobile launched a new season and multiple in-game events.
FIFA 23 is pacing to be the biggest title in franchise history, delivering record engagement in third-quarter. FIFA Mobile engagement was up triple digits in the third quarter and FIFA Online in Asia is hitting the highest monthly active users in years.
Operating Details
EA’s GAAP gross profit rose 13.4% from the year-ago quarter’s levels to $1.31 billion. Gross margin expanded 510 basis points (bps) on a year-over-year basis to 69.8%.
Operating expenses decreased 3% year over year to $1.02 billion. As a percentage of revenues, operating expenses contracted 460 bps on a year-over-year basis to 54.4%.
Operating income on a GAAP basis increased 183.3% year over year to $289 million. The operating margin expanded 970 bps year over year to 15.4% in the reported quarter.
Balance Sheet and Cash Flow
As of Dec 31, 2022, EA had $2.55 billion in cash and short-term investments compared with $1.53 billion as of Sep 30, 2022.
Net cash provided by operating activities in the reported quarter was $1.12 billion against net cash used in operating activities of $112 million in the previous quarter.
EA repurchased 2.6 million shares for $325 million during the quarter, bringing the total for the trailing twelve months to 10.2 million shares for $1.295 billion.
EA paid a cash dividend of 19 cents per share during the quarter, for a total of $52 million. EA has declared a quarterly cash dividend of 19 cents per share of the company’s common stock. The dividend is payable on Mar 22, 2023 to shareholders of record as of the close of business on Mar 1, 2023.
Guidance
For fourth-quarter fiscal 2023, EA expects GAAP revenues between $1.7 billion and $1.8 billion and diluted earnings in the range of 5-20 cents per share. Net bookings are expected to be between $1.675 billion and $1.775 billion.
For fiscal 2023, EA expects revenues in the range of $7.252-$7.352 billion and diluted earnings of $2.97 to $3.11 per share.
The company revised net bookings guidance for the year to be between $7.07 billion and $7.17 billion, which reflects the shift of Star Wars Jedi: Survivor to first-quarter fiscal 2024. It had forecast $7.65 billion to $7.85 billion previously.
Operating cash flow is estimated to be in the band of $1.4 billion to $1.45 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -48.77% due to these changes.
VGM Scores
At this time, Electronic Arts has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Electronic Arts has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Electronic Arts Inc. (EA) : Free Stock Analysis Report
