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Electronic Arts' Earnings Rise as Interactive Entertainment Industry Expands

Joe Tenebruso, The Motley Fool

Electronic Arts (NASDAQ: EA) reported fiscal first-quarter 2020 financial results on July 30. The video game maker is enjoying solid increases in revenue and profits, driven in part by a growing global gamer base.

Electronic Arts' first-quarter results: The raw numbers

Metric

Q1 2020

Q1 2019

Change

Net revenue

$1.2 billion

$1.1 billion

6%

Gross profit

$1 billion

$0.9 billion

11%

Operating income

$415 million

$300 million

38%

Data source: Electronic Arts Q1 2020 earnings release. 

What happened with Electronic Arts this quarter?

Net revenue rose 6% year over year to $1.21 billion, while net bookings -- essentially, the dollar amount of products and services Electronic Arts sold during the quarter -- were basically flat at $743 million. Both figures were above the company's forecast for revenue of $1.13 billion and bookings of $690 million. 

"We delivered operating results significantly above our expectations, driven by broad strength across our core franchises," CFO Blake Jorgensen said in a press release.

During a conference call with analysts, CEO Andrew Wilson highlighted some key trends that are driving EA's expansion:

Interactive entertainment continues to grow. An expanding global player base, new platforms, new business models and more ways to play and watch are fueling tailwinds for the industry. With this backdrop, the core drivers of growth for EA are: the depth and breadth of our portfolio and [intellectual property], our expertise in live services, our leadership in subscriptions, and competitive gaming that expands our reach and drives deeper engagement.  

Notably, EA's subscription services appear to be gaining traction among gamers. Wilson said that some of the company's services give subscribers access to more than 200 games from EA and third-party developers. 

"We're a pioneer and a leader in this space, having just launched our subscription on a third major platform with EA Access on the Sony PlayStation 4," Wilson said. "We believe subscriptions can be transformative to the player experience and the gaming industry over the long term as they offer tremendous value and choice to players, and greater flexibility in the games we bring to market." 

Two young men playing video games

Electronic Arts' subscription plans are proving popular with gamers. Image source: Getty Images.

All told, EA's net income came in at $1.4 billion, compared to $293 million in the year-ago quarter. However, this included a nonrecurring tax benefit of $1.08 billion. The company's operating cash flow, meanwhile, jumped 32% to $158 million.

Looking forward

Electronic Arts reiterated its full-year financial forecast, including:

  • Net bookings of approximately $5.1 billion, representing year-over-year growth of about 3%.
  • Net revenue of $5.375 billion, up 9%.
  • Net income -- adjusted to exclude nonrecurring tax benefits -- of approximately $1.1 billion, up 7%.
  • Operating cash flow of $1.575 billion, up 2%.

"We believe we have the right ingredients in place to deliver fun for our players and success for our business," Jorgensen said.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.