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Electronic Arts (EA) Down 14% Since Last Earnings Report: Can It Rebound?

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  • EA

A month has gone by since the last earnings report for Electronic Arts (EA). Shares have lost about 14% 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 Q2 Earnings Jump Y/Y, Top Line Rises

Electronic Arts reported second-quarter fiscal 2022 earnings of $1.02 per share, which increased 62% year over year.

Revenues increased 58.6% year over year to $1.83 billion, driven by strong performances by EA SPORTS global football franchise, Apex Legends and Star Wars: Galaxy of Heroes.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.17 per share and $1.85 billion, respectively.

Net bookings surged 103.4% year over year to $1.85 billion, better than management’s guidance of $1.725 billion, driven by robust live services performance.

Quarter Details

EA’s full-game revenues (33.8% of total revenues) soared 118.8% year over year to $617 million. Full-game download revenues increased 107% year over year to $163 million. Revenues from packaged goods surged 135% year over year to $119 million.

Live services and other revenues (66.2% of total revenues) rose 39.1% year over year to $1.21 billion.

Based on platforms, revenues from console increased 68% year over year to $714 million in the reported quarter. Revenues from PC & Other increased 51% year over year to $249 million. Revenues from the mobile platform climbed 34% year over year to $188 million.

EA’s Battlefield 2042 Open Beta had 7.7 million players. Apex Legends Season 9 and 10 witnessed the highest number of active players since Season 1.

Star Wars: Galaxy of Heroes surpassed 100 million players life to date.

Operating Details

EA’s GAAP gross profit jumped 54% from the year-ago quarter to $1.33 billion. Gross margin contracted 220 basis points (bps) on a year-over-year basis to 72.9%.

Operating expenses increased 28.5% from the year-ago quarter to $992 million. As a percentage of revenues, operating expenses declined from 62.2% in the year-ago quarter to 54.3% in the reported quarter.

Operating income on a GAAP basis surged 128.2% year over year to $340 million. Operating margin expanded 570 bps year over year to 18.6% in the reported quarter.

Balance Sheet and Cash Flow

As of Sep 30, 2021, EA had $1.97 billion in cash and short-term investments compared with $3.72 billion as of Jun 30, 2021.

Net cash provided by operating activities in the reported quarter was $64 million against net cash used in operating activities of $143 million in the previous quarter.

EA repurchased 2.3 million shares for $325 million in the reported quarter.

The company also declared a quarterly cash dividend of 17 cents per share. The dividend will be paid out on Dec 22, 2021, to shareholders of record as of the close of business on Dec 8, 2021.

Guidance

For the third quarter of fiscal 2022, EA expects GAAP revenues of $1.750 billion and earnings of 2 cents per share. Net bookings are expected at $2.625 billion.

For fiscal 2022, EA expects revenues of $6.925 billion and earnings of $2.03 per share. The company raised net bookings expectations for the year to $7.625 billion.

Operating cash flow is estimated to be $1.95 billion.


Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Electronic Arts has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. It comes with little surprise Electronic Arts has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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