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Why Is Electronic Arts (EA) Up 15.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Electronic Arts (EA). Shares have added about 15.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Electronic Arts’ Q4 Earnings and Revenues Increase Y/Y

Electronic Arts reported fourth-quarter fiscal 2022 earnings of 80 cents per share, which surged 207.7% year over year.

Revenues increased 35.6% year over year to $1.82 billion, driven by strong performances by Battlefield, FIFA 22, Madden NFL, It Takes Two, F1, and Mass Effect Legendary Edition.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.04 per share and $1.76 billion, respectively.

Net bookings increased 17.5% year over year to $1.75 billion, reaching a new fourth-quarter high.

Quarter Details

EA’s full-game revenues (24% of total revenues) increased 75.2% year over year to $438 million. Full-game download revenues increased 69% year over year to $312 million. Revenues from packaged goods surged 94% year over year to $126 million.

Live services and other revenues (76% of total revenues) rose 26.6% year over year to $1.38 billion.

Based on platforms, revenues from consoles increased 24% year over year to $1.09 billion in the reported quarter. Revenues from PC & Other increased 42% year over year to $420 million. Revenues from the mobile platform increased 82% year over year to $313 million.

Apex Legends increased over 40% in 2022, taking it past the $2 billion milestone in lifetime net bookings.

Operating Details

EA’s GAAP gross profit rose 36.9% from the year-ago quarter’s levels to $1.40 billion. Gross margin expanded 70 basis points (bps) on a year-over-year basis to 77%.

Operating expenses increased 22.2% year over year to $1.04 billion. As a percentage of revenues, operating expenses decreased from 63.3% in the year-ago quarter to 57% in the reported quarter.

Operating income on a GAAP basis increased 108.6% year over year to $365 million. The operating margin expanded 700 bps year over year to 20% in the reported quarter.

Balance Sheet and Cash Flow

As of Mar 31, 2022, EA had $3.06 billion in cash and short-term investments compared with $3.02 billion as of Dec 31, 2021.

Net cash provided by operating activities in the reported quarter was $444 million against net cash provided in operating activities of $1.53 billion in the previous quarter.

EA repurchased 2.5 million shares for $325 million in the reported quarter.

The company also declared a quarterly cash dividend of 17 cents per share. The dividend will be paid out on Jun 22, 2022, to shareholders of record as of the close of business on Jun 8, 2022.

Guidance

For first-quarter fiscal 2023, EA expects GAAP revenues between $1.675 billion and $1.725 billion and earnings of 75-85 cents per share. Net bookings are expected to be between $1.20 and $1.25 billion.

For fiscal 2023, EA expects revenues in the range of $7.6 billion-$7.7 billion and earnings of $2.79 to $2.87 per share. The company expects net bookings for the year to be between $7.9 billion and $8.1 billion.

Operating cash flow is estimated to be in the band of $1.6 billion to $1.65 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?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -124.24% due to these changes.

VGM Scores

Currently, Electronic Arts has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Electronic Arts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Electronic Arts belongs to the Zacks Toys - Games - Hobbies industry. Another stock from the same industry, Jakks Pacific (JAKK), has gained 1.3% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Jakks reported revenues of $120.88 million in the last reported quarter, representing a year-over-year change of +44.2%. EPS of -$0.28 for the same period compares with -$1.77 a year ago.

For the current quarter, Jakks is expected to post a loss of $0.45 per share, indicating a change of -18.4% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Jakks has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.


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