Categories Analysis, Technology

Earnings Preview: What to watch when Electronic Arts reports Q1 results?

Electronic Arts (NASDAQ: EA) is scheduled to report its first quarter results on July 30 after the bell. The gaming giant has been facing multiple headwinds with the stock price recovered 13% this year after it touched a new 52-week low mark in late December. However, the share price has dwindled about 40% from July last year due to lackluster performance.

Looks like EA is going to kick start the earnings season for the gaming industry. EA’s rival Activision Blizzard (ATVI) is reporting its second quarter results on August 8th while Take-Two Interactive Software (TTWO) is slated to publish first quarter earnings on August 5th. Investors would be keeping a close tab on EA and its rivals to get more insights on the how the gaming industry is going to perform in the near future.

From the street perspective, out of the 22 analysts tracked by TipRanks, 16 has given “Buy” rating and 6 of them have awarded “Hold” rating for the EA stock. The 12-month stock price target is $112 mark, which is an upside of 25% from today’s trading level of $89.

Here are the key metrics to keep a tab on when EA reports its first quarter results.

Headline Numbers

Electronic Arts is anticipating Q1 revenue of $1.13 billion including deferred net revenues of $405 million. Excluding the deferred metrics, revenue is forecasted to come in at $725 million. GAAP earnings is expected at $5.84 per share, including one-time tax benefit of about $5 per share. Analysts are expecting sales of $719 million and adjusted earnings of 1 cent.

Net bookings is a closely watched metric by analysts. The gaming firm expects Q1 bookings to be about $690 million. This would help investors to gauge the sales of gaming titles are performing across the board.

Growth Avenues

Digital sales continue to be a major contributor to the top line over the past two years. The company expects the trend to grow which would augment its monetization efforts through additional purchases, subscription and esports. Last year, sales from the digital front brought in 75% of revenues compared to 59% in the 2017 period.Live services last year contributed 45% to the top line and are expected to witness strong growth in the near future. The company offers players various services like content downloads, in-game purchases, and esports. The well-known live service from the firm is called Ultimate Team which helps players to customize their teams. Last year, this service contributed 28% to the total revenues.

Battle Royale

The launch of Fortnite by Epic Games couple of years back saw the emergence of a new genre in the gaming industry called battle royale. The free-to-play multiplayer format which is platform agnostic has been an instantaneous hit across the board. It has been a huge money spinner for Epic Games with more than 250 million players enrolled.

In early 2019, EA launched Apex Legends in the battle royale genre to take on Fortnite. The game was well received by the gamers and reached 50 million milestone within a month since launch. The street was anticipating Apex to be a game changer for Electronic Arts bringing in the necessary “hit” title contributing to the top and bottom line similar to what Fortnite did for Epic Games.

Earlier this month, EA launched the Apex Legends Season 2. The initial response post the launch seems to be disappointing, which would be a concern for investors. However, analysts want to hear more from the management next week on how the new update has been received by the players.

EA plans to launch Star Wars franchise titled “Star Wars Jedi: Fallen Order” in November matching with the holiday season.

Fiscal Outlook

For the fiscal 2020 period, Electronic Arts is guiding sales to be about $5.375 billion and GAAP earnings per share of $8.56, which includes $5 as one-time tax benefit. On the flip side, the street is anticipating sales to grow about 5% to $5.18 billion and adjusted EPS of $4.52 compared to $4.25 reported in the prior year period.

Browse through our earnings calendar and get all scheduled earnings announcements, analyst/investor conference and much more!

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