Electronic Arts (EA) Q4 Earnings Decrease Y/Y, Revenues Rise

Electronic Arts (EAFree Report) reported fourth-quarter fiscal 2017 results, wherein the company reported earnings (on a GAAP basis) of $ 1.81 per share compared with the prior-year quarter’s earnings of $ 2.79.

Electronic Arts also announced a new share repurchase authorization of $ 1.2 billion.  

Per EA, total revenue (on a GAAP basis) came in at $ 1.527 billion, up 16.7% year over year. Continued increases in digital revenues and strength in mobile games (Star Wars: Galaxy of Heroes) and EA Sports titles like FIFA 17 and Battlefield 1 were the driving factors.Shares were up 7% in the aftermarket session.

Revenues (including deferred revenues) came in at $ 1.092 billion, slightly lower than the Zacks Consensus Estimate of $ 1.093 billion.

EA’s (GAAP) digital revenues (61.2% of revenues) increased 30.6% to $ 934 million while revenues from EA’s Packaging goods and other segment (38.8% of total revenue) were lower at $ 593 million.

Further segregating digital revenues, full game downloads revenues were up 70% to $ 259 million from the fourth quarter of fiscal 2016 while EA mobile games increased 9% year over year to $ 165 million. Revenues from subscriptions, advertising and others increased 20% to $ 113 million. Extra content revenues were up 25% to $ 397 million.

Margins

EA’s gross margin came in at 86.8% compared with 82.7% reported in the prior-year quarter.

Operating profit was $ 717 million, up 33.8% from the prior-year quarter.

Balance Sheet and Cash Flow

As of Mar 31, 2017, EA had $ 4.532 billion in cash and short-term investments compared with $ 3.834 billion as of Mar 31, 2016. Net cash provided by operating activities for the fiscal year came in at $ 1.383 billion.

During the fiscal year, the company repurchased 6.5 million shares for $ 508 million.

Outlook

EA provided guidance for the first quarter and fiscal 2018. Strength in franchises like Battlefield, FIFA and Star Wars: Battlefront II will boost top line in the fiscal year. Management expects the “live services components” of the franchises to emerge as a big future growth driver.

For the first quarter, the company expects GAAP revenues of $ 1.425 billion. Change in deferred revenues will be a negative $ 675 million. The company projects earnings per share of $ 1.93.

For fiscal 2018, EA now expects to generate GAAP revenues of approximately $ 5.1 billion. Change in deferred revenues will be to the tune of $ 1.125 billion. The company projects earnings per share of $ 3.57. Operating cash flow is estimated to be around $ 1.575 billion.

Our Take

We believe that EA’s popular franchises such as Battlefield and FIFA, and strength in digital business, especially mobile games are the key growth catalysts. Cost optimization initiatives will prove to be beneficial.

Stiff competition from other game makers such as Activision Blizzard Inc. (ATVIFree Report) , Take Two Interactive (TTWOFree Report) and Glu Mobile Inc. (GLUUFree Report) remains a major concern.

In the last one year, Electronic Arts returned 35.32% compared with the Zacks Toys/Games/Hobby/ Product industry’s gain of 27.56%.

Currently, Electronic Arts has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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