Electronic Arts (EA) Up 6.2% Since Last Earnings Report: Can This Continue?

It’s been a month since Electronic Arts’ (EA) last reported earnings. Shares are up about 6.2% in that time, outperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or is Electronic Arts headed for a recession? Before we delve into the latest investor and analyst reaction, let’s take a look at the company’s latest earnings report to get a better sense of the important factors at play.

Electronic Arts’ Q1 profits down year-on-year, revenue up

Electronic Arts reported first-quarter fiscal 2022 earnings of 71 cents per share, down 43.2% year-over-year.

Revenue rose 6.3% year over year to $1.55 billion, driven by strong company results Mass Effect Legendary EditionAND Requires two.

The Zacks Consensus Estimate for earnings and revenue is pegged at 63 cents per share and $1.33 billion, respectively.

Net bookings declined 3.9% year over year to $1.34 billion, above management’s guidance of $1.25 billion, driven by a strong performance in live services.

Quarter Details

EA’s full game revenue (20.8% of total revenue) declined 10.3% year-over-year to $322 million. Full-game net bookings declined 30% year-over-year to $187 million.

Further breaking down full game revenue, full game download revenue increased 4% year over year to $233 million. Packaged goods revenue decreased 35% year over year to $89 million.

Live Services and Other revenues (79.2% of total revenues) increased 11.7% year over year to $1.23 billion. Live Services net bookings increased 12% year over year to $1.23 billion.

EA’s portfolio currently includes over 15 top mobile live streaming services.

On a platform basis, console revenue increased 4% year-over-year to $972 million in the reported quarter. Console net bookings decreased 16% year-over-year to $694 million.

PC/Browser revenue increased 11% year over year to $361 million. Net bookings from PC/Browser increased 9% year over year to $370 million.

Mobile platform revenue increased 8% year-over-year to $218 million. Mobile net bookings increased 20% year-over-year to $272 million.

In the reported quarter, EA disclosed Battlefield 2042. Apex Legends recorded significant growth in the reported quarter and remains on track to achieve organic growth of over 20% this year, with the launch of a mobile device being a positive development.

Apex Legends Season 9 an average of over 13 million active users per week.

Operational details

EA GAAP gross profit increased 5.6% compared to the same quarter last year to $1.24 billion. Gross margin decreased 60 basis points (bps) year over year to 79.7%.

Operating expenses increased 30.6% compared to the same quarter last year to $914 million. As a percentage of revenue, operating expenses increased from 48% in the prior-year quarter to 58.9% in the reported quarter.

As a percentage of revenue, marketing and sales (M&S), research and development (R&D), and general and administrative (G&A) expenses increased by 400 basis points, 320 basis points and 160 basis points, respectively.

GAAP operating income decreased 31.6% year over year to $322 million. Operating margin decreased from 32.3% in the year-ago quarter to 20.8% in the reported quarter.

Balance sheet and cash flow

As of June 30, 2021, EA had $3.72 billion in cash and short-term investments, up from $6.36 billion as of March 31, 2021.

Net cash used in operating activities during the reported quarter was $143 million compared to net cash provided by operating activities of $371 million in the prior-year quarter.

During the quarter, EA repurchased 2.3 million shares for $325 million, bringing its total share count for the fiscal year to 7.2 million for $976 million.

The company also declared a quarterly cash dividend of 17 cents per share. The dividend will be paid on September 22, 2021 to shareholders of record as of September 1, 2021.

Conductivity

For the second quarter of fiscal 2022, EA expects GAAP revenue of $1.775 billion and earnings of 36 cents per share. Net bookings are expected to be $1.725 billion.

For fiscal 2022, EA expects revenue of $6.850 billion and earnings of $1.58 per share. The company raised its net bookings expectation for the year to $7.400 billion.

Cash flow from operating activities is estimated at $1.85 billion.

Note: EPS data mentioned in the text of this section differs from the rest of the report due to differences in calculation or the inclusion of non-recurring items.

How have estimates changed since then?

Investors have witnessed an uptrend in estimate revisions over the last month. The consensus estimate moved 242.31% due to these changes.

VGM Results

Currently, Electronic Arts has an average Growth Score of C, although it lags slightly in terms of Momentum Score with a D. Following the exact same path, the stock is rated D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Composite VGM Score of C. If you’re not focused on a single strategy, this rating should interest you.

Perspectives

Stock estimates are trending upwards, and the scale of these revisions looks promising. Notably, Electronic Arts has a Zacks Rank #3 (Hold). We expect consistent returns from the stock over the next few months.

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