Earnings Preview: Electronic Arts (EA)
By:NewsyStocks   Wednesday, February 01, 2022 12:26 PM

Electronic Arts (EA) is scheduled to release its third quarter earnings today after the market closes. Driven by the success of Battlefield 3, continued sales of FIFA 12, and the initial sell-through of Star Wars, EA is expected to report results in line with consensus.

The company is expected to post earnings of $0.97 on revenue of $1.68 billion this quarter, versus consensus for EPS of $0.93 on revenue of $1.61 billion,  and revenue guidance of $1.55 – $1.65 billion along with EPS on the range of $0.85 – 0.95.

Third quarter NPD sales were down 26 percent year-over-year and were a disappointment. The miss was primarily because:

  • Wii software sales were down 63percent  year-over-year during the Dec quarter,
  • 27 fewer SKUs were released during holiday season 2011 versus '10,
  • Need for Speed: The Run (11/11) units were down 47 percent year-over-year during the Dec quarter as against NFS: Hot Pursuit (11/10).

EA's PS3 and X360 NPD sales were, however, up a combined 11percent year-over-year during the quarter.

Wedbush Securities has reiterated its Buy rating and $27 target on EA. Star Wars MMO traffic, after the initial surge and the natural fall-off, now seems relatively stable (a week after the free period ended), and may even have seen a slight pick-up over the weekend.  Mass Effect 3 and Kingdoms of Amalur: Reckoning (co-published title) are potential near-term catalysts to the stock. Overall, Wedbush considers the stock's recent pullback on Star Wars concerns as overdone.

Investors should expect a low single digit increase in EA's overall console business (including DLC) during FY13 helped by sales of Wii U software. 

Second Quarter Results & Earnings History

EA's performance in 2Q exceeded the non-GAAP revenue and EPS guidance provided on the Q1 earnings call. 

Total 2Q non-GAAP revenue was $1.03 billion, growing 17percent versus the year-ago period. EPS came in at $0.59. The growth was driven by strong performances in sports releases.  The current releases of FIFA, Madden, NCAA and NHL each grew year-over-year, collectively at more than 20 percent.

During the quarter, EA repurchased 4.7 million shares at a cost of $98 million. EA has approximately $4.52 per share in cash, short-term investments, and marketable securities. 

EA reported an EPS of $0.05 in 2Q and $0.25 in Q1 of 2011 on revenue of $1.03 billion and $995 million respectively.

Our Take

Star Wars activity started strong (over 1 million players to date, but no update since Dec.) and sales of Battlefield were better than we expected .  This strength could be offset by margin pressure due to lower ASPs on some holiday titles, and weakness in Need for Speed sales. 

The 3Q unit upside (and aggressive pricing to drive unit sales) may drive slightly lower 4Q catalog sales, and are a bit below the street for F4Q.  Looking forward, 4Q comprises a highly anticipated title in Mass Effect 3 and a potential sleeper hit in the co-published title Kingdoms of Amalur: Reckoning.