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

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A month has gone by since the last earnings report for Electronic Arts (EA). Shares have added about 6.2% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Electronic Arts Q1 Earnings Down Y/Y, Top Line Rises

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

Revenues increased 6.3% year over year to $1.55 billion, driven by strong performance of Mass Effect Legendary Edition, and It Takes Two.

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

Net bookings decreased 3.9% year over year to $1.34 billion, better than management’s guidance of $1.25 billion, driven by robust live services performance.

Quarter Details

EA’s full-game revenues (20.8% of total revenues) decreased 10.3% year over year to $322 million. Net bookings from full games decreased 30% year over year to $187 million.

Further segregating full-game revenues, full-game download revenues increased 4% year over year to $233 million. Revenues from packaged goods plunged 35% year over year to $89 million.

Live services and other revenues (79.2% of total revenues) rose 11.7% year over year to $1.23 billion. Net bookings from live services increased 12% year over year to $1.23 billion.

EA’s portfolio now spans more than 15 top mobile live services.

Based on platforms, revenues from console increased 4% year over year to $972 million in the reported quarter. Net bookings from console decreased 16% year over year to $694 million.

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

Revenues from mobile platform climbed up 8% year over year to $218 million. Net bookings from mobile increased 20% year over year to $272 million.

During the reported quarter, EA revealed Battlefield 2042. Apex Legends grew strongly in the reported quarter and remains on track to grow organically more than 20% this year, with the mobile launch as an upside.

Apex Legends Season 9 averaged more than 13 million weekly active users.

Operating Details

EA’s GAAP gross profit increased 5.6% from the year-ago quarter to $1.24 billion. Gross margin contracted 60 basis points (bps) on a year-over-year basis to 79.7%.

Operating expenses increased 30.6% from the year-ago quarter to $914 million. As a percentage of revenues, operating expenses expanded from 48% in the year-ago quarter to 58.9% in the reported quarter.

As a percentage of revenues, marketing & sales (M&S), research & development (R&D) and general & administrative (G&A) expenses expanded 400 bps, 320 bps and 160 bps, respectively.

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

Balance Sheet and Cash Flow

As of Jun 30, 2021, EA had $3.72 billion in cash and short-term investments compared with $6.36 billion as of Mar 31, 2021.

Net cash used in operating activities in the reported quarter was $143 million compared to net cash from operating activities of $371 million in the previous quarter.

EA repurchased 2.3 million shares for $325 million during the quarter, bringing the 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 out on Sep 22, 2021 to shareholders of record as of the close of business on Sep 1, 2021.

Guidance

For the second quarter of fiscal 2022, EA expects GAAP revenues 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 revenues of $6.850 billion and earnings of $1.58 per share. The company raised net bookings expectations for the year to be $7.400 billion.

Operating cash flow is estimated to be $1.85 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 revision. The consensus estimate has shifted 242.31% due to these changes.

VGM Scores

Currently, Electronic Arts has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Electronic Arts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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