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Electronic Arts (EA) Q3 Earnings Top, Battlefront 2 Hurts
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Electronic Arts (EA - Free Report) reported third-quarter fiscal 2018 results, wherein the company’s non-GAAP earnings of $2.22 per share beat the Zacks Consensus Estimate of $2.18 but declined nearly 14% from the year-ago quarter.
Underperformance of Star Wars Battlefront 2 compared to Battlefield 1 launched in the year-ago quarter was a dampener.
Net bookings came in at $1.97 billion, down 4.8% year over year. It also missed the Zacks Consensus Estimate of $2.02 billion.
Revenues (excluding deferred revenues) came in at $1.160 billion compared with $1.149 million in the year-ago quarter.
The company benefited from its popular franchises, especially Battlefield and FIFA. Strength in digital business backed by live services and mobile games was a key growth driver.
EA shares have gained 42.3% in the past year, underperforming the industry’s 48.7% rally.
Quarterly Details
EA’s digital revenues (67.2% of revenues) increased 13.9% to $780 million due to Battlefield 1, Ultimate Team and Madden NFL 18 full game downloads. Revenues from EA’s Packaging goods and Other segment (32.8% of total revenue) were down 18.1% to $380 million.
Further segregating digital revenues, full game downloads revenues declined 15% to $143 million from the third quarter of fiscal 2017. EA mobile games revenues increased 10% year over year to $161 million.
Revenues from Live services increased 29% to $476 million. It now includes revenues from extra content and subscriptions, advertising, and others. Live services net bookings were up 39% year over year to $787 million driven by Ultimate Team and The Sims 4.
Geographically, revenues in North America (39% of total revenue) declined 19% year over year to $452 million. Internationally (61% of total revenue), revenues increased 20% from the year- ago quarter to $708 million.
Margins
EA’s gross margin of 56.8% expanded 170 basis points (bps) on a year-over-year basis.
Operating loss was $21 million, wider than a loss of $4 million in the prior-year quarter.
Balance Sheet and Cash Flow
As of Dec 31, 2017, EA had $4.89 billion in cash and short-term investments compared with $4.36 billion as of Sep 30, 2017. Net cash provided by operating activities in the quarter came in at $849 million.
The company repurchased 1.4 million shares for $150 million. EA has $778 billion worth of shares left under its two-year $1.2 billion buyback program announced this May.
Outlook
For the fourth quarter, the company expects GAAP revenues of $1.53 billion. Change in deferred revenues will be ($307) million. Net bookings are expected to be $1.225 billion, which is 12% higher than the year-ago figure backed by growth in live services.
The company projects earnings per share of $1.86. Rise in operating expense mainly due to higher investments in games and live services will weigh on the bottom line.
For fiscal 2018, EA now expects GAAP revenues of $5.1 billion, up from the earlier projection of $5.075 billion. Change in deferred revenues will be around $50 million compared with $75 million projected earlier.
EA continues to expect net bookings of $5.15 billion.
The company projects earnings per share of $3.25, lower than $3.63 projected earlier.
The company reaffirmed expectations for operating cash flow, capex and free cash flow. Operating cash flow is estimated to be around $1.6 billion. Capex is expected to be $120 million, resulting in free cash flow of $1.48 billion.
Electronic Arts Inc. Price, Consensus and EPS Surprise
Long-term earnings growth rate for Micron, Lam Research and The Trade Desk is projected to be 10%, 14.85% and 25%, respectively.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Electronic Arts (EA) Q3 Earnings Top, Battlefront 2 Hurts
Electronic Arts (EA - Free Report) reported third-quarter fiscal 2018 results, wherein the company’s non-GAAP earnings of $2.22 per share beat the Zacks Consensus Estimate of $2.18 but declined nearly 14% from the year-ago quarter.
Underperformance of Star Wars Battlefront 2 compared to Battlefield 1 launched in the year-ago quarter was a dampener.
Net bookings came in at $1.97 billion, down 4.8% year over year. It also missed the Zacks Consensus Estimate of $2.02 billion.
Revenues (excluding deferred revenues) came in at $1.160 billion compared with $1.149 million in the year-ago quarter.
The company benefited from its popular franchises, especially Battlefield and FIFA. Strength in digital business backed by live services and mobile games was a key growth driver.
EA shares have gained 42.3% in the past year, underperforming the industry’s 48.7% rally.
Quarterly Details
EA’s digital revenues (67.2% of revenues) increased 13.9% to $780 million due to Battlefield 1, Ultimate Team and Madden NFL 18 full game downloads. Revenues from EA’s Packaging goods and Other segment (32.8% of total revenue) were down 18.1% to $380 million.
Further segregating digital revenues, full game downloads revenues declined 15% to $143 million from the third quarter of fiscal 2017. EA mobile games revenues increased 10% year over year to $161 million.
Revenues from Live services increased 29% to $476 million. It now includes revenues from extra content and subscriptions, advertising, and others. Live services net bookings were up 39% year over year to $787 million driven by Ultimate Team and The Sims 4.
Geographically, revenues in North America (39% of total revenue) declined 19% year over year to $452 million. Internationally (61% of total revenue), revenues increased 20% from the year- ago quarter to $708 million.
Margins
EA’s gross margin of 56.8% expanded 170 basis points (bps) on a year-over-year basis.
Operating loss was $21 million, wider than a loss of $4 million in the prior-year quarter.
Balance Sheet and Cash Flow
As of Dec 31, 2017, EA had $4.89 billion in cash and short-term investments compared with $4.36 billion as of Sep 30, 2017. Net cash provided by operating activities in the quarter came in at $849 million.
The company repurchased 1.4 million shares for $150 million. EA has $778 billion worth of shares left under its two-year $1.2 billion buyback program announced this May.
Outlook
For the fourth quarter, the company expects GAAP revenues of $1.53 billion. Change in deferred revenues will be ($307) million. Net bookings are expected to be $1.225 billion, which is 12% higher than the year-ago figure backed by growth in live services.
The company projects earnings per share of $1.86. Rise in operating expense mainly due to higher investments in games and live services will weigh on the bottom line.
For fiscal 2018, EA now expects GAAP revenues of $5.1 billion, up from the earlier projection of $5.075 billion. Change in deferred revenues will be around $50 million compared with $75 million projected earlier.
EA continues to expect net bookings of $5.15 billion.
The company projects earnings per share of $3.25, lower than $3.63 projected earlier.
The company reaffirmed expectations for operating cash flow, capex and free cash flow. Operating cash flow is estimated to be around $1.6 billion. Capex is expected to be $120 million, resulting in free cash flow of $1.48 billion.
Electronic Arts Inc. Price, Consensus and EPS Surprise
Electronic Arts Inc. Price, Consensus and EPS Surprise | Electronic Arts Inc. Quote
Zacks Rank and Stocks to Consider
Electronic Arts carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the broader technology sector include Micron Technology Inc. (MU - Free Report) , Lam Research Corporation (LRCX - Free Report) and The Trade Desk Inc. (TTD - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Micron, Lam Research and The Trade Desk is projected to be 10%, 14.85% and 25%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>