Why Is Electronic Arts (EA) Up 2.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Electronic Arts (EA). Shares have added about 2.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Electronic Arts due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Electronic Arts Q4 Earnings & Revenues Increase Y/Y

Electronic Arts reported fourth-quarter fiscal 2020 earnings of $1.43 per share, which increased 107.2% year over year.

Revenues rose 12% year over year to $1.38 billion. Excluding the change in deferred revenues of $131 million and mobile platform fees of $43 million, net bookings declined 11.1% year over year to $1.21 billion.

The Zacks Consensus Estimate for earnings and revenues was pegged at 98 cents per share and $1.17 billion, respectively.

Quarter Details

Digital net bookings were $1.11 billion, increasing 6% year over year and representing 92% of total net bookings.

EA’s digital revenues (87.9% of total revenues) grew 14.5% year over year to $1.21 billion. However, packaged goods and other segment revenues (12.1% of total revenues) were down 2.9% year over year to $168 million.

Further segregating digital revenues, full game download revenues increased 25% year over year to $211 million. However, net bookings declined 10.8% year over year to $190 million.

Live services revenues rose 17% year over year to $832 million while net bookings declined 6.6% year over year to $789 million.

Mobile games revenues decreased 3% year over year to $176 million. Net bookings increased 2.2% year over year to $138 million.

Based on its platforms, revenues from console increased 12% year over year to $928 million. Net bookings from console declined 7.9% year over year to $707 million.

Revenues from PC/browser were up 24% year over year to $269 million. Net bookings from PC/browser declined 6.2% year over year to $272 million.

Meanwhile, revenues from mobile platform dropped 3% year over year to $185 million. Net bookings from mobile improved 2.2% year over year to $138 million driven by strong popularity of sports titles in Asia.

Other revenues remained flat year over year at $5 million.

Important Game & Player Metrics

Star Wars: Jedi Fallen Order witnessed strong popularity with more than 10 million unique players joining the game since launch.

Moreover, Madden NFL 20 is delivering the highest engagement levels in Madden’s more than 30-year history.

Further, FIFA grew year over year in the fiscal fourth quarter. With approximately 100 million players engaging globally in FIFA franchise and more than 25 million unique players joining FIFA 20 till date, the addition of VOLTA Football to FIFA 20 and the updates to FIFA Ultimate Team further boosted player engagement in the reported quarter.

Moreover, FIFA Online continued to perform strongly especially in Asia amid coronavirus lockdown.

Notably, Apex Legends Season 4 had already outperformed in each of the two prior seasons, even before COVID-19 stay-at-home orders were rolled out. Meanwhile, Apex E-sports tournaments generated around two times the average viewing audience compared to other top E-sports leagues.

Further, the company delivered live service content while working from home, including FIFA Ultimate Team events, Madden Ultimate Team content for the NFL Draft, and new additions to Star Wars Galaxy of Heroes.

Operating Details

EA’s GAAP gross profit increased 16.2% from the year-ago quarter to $1.11 billion. Gross margin expanded 290 basis points (bps) on a year-over-year basis to 80.6%.

Operating expenses declined 6.4% from the year-ago quarter to $771 million. As a percentage of revenues, operating expenses contracted to 51.7% from 61.9% in the year-ago quarter.

As a percentage of revenues, marketing & sales (M&S) and research & development (R&D) expenses shrank 650 bps and 320 bps, respectively. Meanwhile, general & administrative (G&A) expenses expanded 30 bps in the reported quarter.

Operating income on a GAAP basis surged 104.6% year over year to $401 million. As a percentage of revenues, operating margin expanded to 28.9% from 15.8% in the year-ago quarter.

Balance Sheet and Cash Flow

As of Mar 31, 2020, EA had $5.7 billion in cash and short-term investments compared with $5.6 billion as of Dec 31, 2019.

EA has $1 billion in senior notes as of Mar 31, 2020, with $600 million maturing in March 2021, and $400 million due in 2026.

Net cash from operating activities in the reported quarter was $$1.79 billion compared with $1.10 billion in the previous quarter.

EA repurchased 2.7 million shares for $291 million in the reported quarter.

Guidance

For the first quarter of fiscal 2021, EA expects GAAP revenues of $1.22 billion. Net bookings are expected to be $1 billion.

EA anticipates operating expenses of $635 million. Earnings are expected to be 93 cents per share.

For fiscal 2021, EA expects GAAP revenues of $5.525 billion and net bookings of $5.55 billion.

Moreover, EA anticipates operating expenses of $2.85 billion for the fiscal.

Additionally, earnings are expected to be $3.35 per share.

Operating cash flow is estimated to be $1.575 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 estimates review. The consensus estimate has shifted 661.84% due to these changes.

VGM Scores

At this time, Electronic Arts has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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