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Video game maker Electronic Arts reported better than expected December quarter earnings after the market Thursday. However $EA traded lower after warning on next quarters revenue. FIFA Ultimate Team matches were up nearly 40% y/y as it competed with Fortnite.

Battlefield 1 In the Name of the Tsar

Electronic Arts Inc. NASDAQ: EA) Reported After Close Thursday

$2.52 Beat $2.51 EPS Forecast and $1.98 Beat $1.95 Billion Forecast in Revenue 

Earnings

EA earned an adjusted $2.52 a share on net bookings of $1.98 billion in its fiscal third quarter ended Dec. 31. Analysts expected EA earnings of $2.51 a share on sales of $1.95 billion. Net income soared by 32% to $346 million or $1.18 per share. Revenue climbed by 24% to $1.59 billion. Net bookings jumped by 23% to $1.98 billion. On a year-over-year basis, net bookings rose 23%.

Electronic Arts Inc. NASDAQ: EA

Market  Reaction: After hours $108.20 −3.44 (-3.08%)

Highlights

  • Digital net bookings for the trailing twelve months was $4.128 billion, up 15% year-over-year and now represents 77% of total net bookings.
  • During the quarter, EA launched Plants vs. Zombies: Battle for Neighborville, Need for Speed Heat and Star Wars Jedi: Fallen Order. 
  • FIFA Ultimate Team matches were up nearly 40% year-over-year from launch through Q3.
  • During the quarter, The Sims 4 surpassed 20 million unique players worldwide life-to-date.
  • Full game downloads increased by 16% and live services jumped by 41% while mobile revenue fell by 11%.
  • By platform, revenue from console jumped by 31% year-over-year for the third quarter and that from PC/Browser increased by 18%.
  • However, Mobile revenue declined by 7% and other revenue dropped by 33%.

Electronic Arts Q3 2020 Earnings

Outlook

For the current quarter, EA guided to net bookings of $1.152 billion this was lower than the expected $1.2 billion. The company expects revenue of about $1.325 billion, net bookings of about $1.152 billion, and earnings of $1.05 per share. Analysts expect EPS of $0.97 on revenue of $1.2 billion for the fourth quarter.

For the full year 2020, EA lifted revenue outlook to about $5.475 billion from $5.41 billion and its EPS guidance to about $9.90 from the previous estimate of about $9.57. Net bookings outlook is raised to about $5.15 billion from the prior forecast of about $5.1 billion.

The company expects live services to continue to drive growth in fiscal 2021 and for growth to accelerate in fiscal 2022, led by a new Battlefield. Electronic Arts said its broad-based business model lowers its dependence on individual titles and deliver financial results by providing a constant stream of high-quality entertainment for players.

 

Battlefield V and Fortnite

EA delayed the flagship first shooter game Battlefield V launch by about a month last year sending the stock sharply lower by 10% on the day 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.

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 come from Battlefield 1, Ultimate Team and Madden NFL 18 full game downloads. Current EA sports titles include "Madden NFL 19," "FIFA 19," "NBA Live 198," "NHL 19," 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.

The video gaming industry's holiday selling season is big driver of EA earnings and it has much ado about competition from "Fortnite."

Fortnite

 "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.

Source: Electronic Arts, AlphaStreet

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