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Video game maker Electronic Arts fell over 12% last week after it announced it would be delaying Battleship V after previous raised sales guidance. $EA was also hit by a downgrade by Bank of America on both the Battleship news and Fortnite gains.

Battlefield 1 In the Name of the Tsar

EA delayed the flagship first shooter game Battlefield V launch by about a month sending the stock sharply lower by 10% Thursday to its lowest level since January which induced analysts at Bank of America to downgrade the stock. Fortnite has taken gaming by storm and become the great disruptor, EA needed no reason to worry investors of inroads into their staples.

Competition in the gaming industry has gone to another level after the blockbuster that is Fortnite. The success from Epic games sees developers and publishers frantically revising their strategies. EA is eager to not put a foot wrong and puts customer experience of paramount importance. However Electronic Arts by delaying in a hyper bull market caused nervous disappointment for investors. 

Battlefield is the most popular game among the company’s franchises.

“We’re updating our fiscal year guidance to reflect the updated launch date for Battlefield V, the ongoing impact of foreign exchange rate changes, and our current outlook for our mobile business. Our core businesses, including FIFA Ultimate Team, are strong, we think our players are going to love Battlefield V, and excitement is building for our new IP, Anthem,” said CFO Blake Jorgensen.

Taking into account the postponed release of Battlefield the company also announced a downward revision of its financial outlook for fiscal 2019 to factor in the impact of the postponement on net bookings and variations in foreign exchange rates since the last guidance. The company currently expects full-year net bookings to be in the range of $5.55 billion to $5.20 billion. Meanwhile, it reaffirmed the second-quarter outlook provided in the most recent earnings report.

EA Earnings Q2 18

EA at the Electronic Entertainment Expo held in June had announced that Battlefield V would feature a Battle-Royale mode, first introduced by Fortnite parent Epic Games. This had excited gamers and investors alike as it was seen as Battlefield V helping Electronic Arts regain the market share it lost to competitors recently.

It has been a wild year for Electronic Arts stocks, hitting a record high in late July but falling back after the company announced weak quarterly guidance, despite better-than-expected earnings. 

Key games for EA during the December quarter included Star Wars Battlefront 2, Madden NFL and FIFA.

EA’s gross digital revenues coem from Battlefield 1, Ultimate Team and Madden NFL 18 full game downloads. Current EA sports titles include "Madden NFL 18," "FIFA 18," "NBA Live 18," "NHL 18," all built on the 'captures' or existing bases. 

Other EA revenues include the 'Packaging goods and Other segment and from Live services increased 29% to $476 million. This segment includes revenues from extra content and subscriptions, advertising, and others. Live services net bookings are driven by Ultimate Team and The Sims 4.

Geographically EA receives around 39% of revenue from North America (39% of total revenue) and internationally around 61% of total revenue. Over the past year "Star Wars Battlefront II, Battlefield," "Mass Effect" and The Sims and Need for Speed franchises all built their bases, strengthening their franchise values.

Bank of America Merrill Lynch Downgrades EA

Analyst Justin Post note to clients Friday "More cautious as some key franchises continue to slump."

BAML is worried about the ideo gaming industry's holiday selling season and it has much ado about Fortnite The firm lowered its rating for both Electronic Arts and Activision Blizzard shares to neutral from buy, citing the crowded holiday slate and competition from "Fortnite."

 "While we expected investor optimism on new titles to build through Sept., we believe Electronic Arts' (EA) guidance cut will change that dynamic, with future concerns on unit sales or ASP discounting possible," analyst Justin Post said in his note to clients Friday.

Fortnite

Cutting estimates for Electronic Arts "highlights risks of a back-end loaded year, crowded holiday title slate and continued Fortnite pressure" on Activision, the note said.

The analyst lowered his price target to $126 from $159 for EA shares citing how "Fortnite" continues to expand its user base on a monthly basis, which may negatively affect the large publishers' game sales later this year. Increased competition in the first-person shooter game market, as shown by the "Battlefield V" issues, will likely pressure publishers' high valuation multiples, he said.

A crowded fourth quarter "may lead to spillover challenges in early 2019 as publishers vie for gamer engagement to drive live service initiatives," he said. 

Source: Electronic Arts, AlphaStreet

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