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Electronic Arts reported earnings today for the second fiscal quarter that ended September 30, as ongoing operations for existing EA Sports games like FIFA and Madden helped it through a quarter with smaller releases.
EA reported net income on a GAAP basis of $299 million, or $1.07 a share, compared with $294 million, or $1.02 a share, in the same quarter a year ago. Net bookings were $1.754 billion, down from $1.851 billion a year earlier. EA noted that the strong dollar means that foreign currency exchange will have a $200 million negative effect.
GAAP-based net revenue was $1.9 billion, up from $1.83 billion a year earlier. In after-hours trading, the stock is up at $122.94 a share, down 2%.
It’s unclear why the stock is down. Revenue at the midpoint of the guide at $1.754 billion (versus the guide from the company for analysts was $1.725 billion to $1.775 billion), but it’s a bit below consensus of $1.803 billion, said analyst Michael Pachter of Wedbush Securities.
The adjusted earnings per share of $1.45 was better than the guidance ($1.25 to $1.35) and better than the analyst consensus of $1.37. But Pachter noted EA lowered its full-year guidance to $7.65 billion to $7.85 billion from $7.9 billion to $8.1 billion prior. They said foreign currency translation lowered their initial guide by $200 million, so nominally, they are barely tweaking the guide, Pachter said. They also widened the earnings per share guidance to $6.95 to $7.25, compared to the prior estimate of $7.05 to $7.15. The earlier analyst consensus was at $7.17.
“In (fiscal year) Q2, EA delivered strong engagement and deeply immersive experiences across our portfolio, with new EA Sports titles and multi-platform live services powering the business,” said CEO Andrew Wilson, in a statement. “More people than ever before are turning to games as their primary platform for social connection and creativity. With EA’s unrivaled IP, talented teams, and growing player network, we are well-positioned to lead the future of entertainment.”
The slight decline compared to a year ago isn’t unusual, given the pandemic’s huge effect on games last year, as more people stayed inside and played more. Now that things have loosened somewhat, games have more competition.
“We delivered solid performance across our business in Q2, driven by our EA Sports portfolio and our multi-platform live services business,” said Wilson, in an analyst call. “Our broad IP, exceptional talent, and growing player network of more than 600 million are the foundation of strength and stability in an uneven macro environment.”
Net bookings for the trailing twelve months was $7.381 billion, up 4% year-over-year. Live services and other net bookings for the trailing twelve months were up 7% year-over-year and represent 73% of total net bookings.
“Q2 was a solid quarter. We again delivered on our revenue and profit commitments, driven by our EA Sports portfolio and our multi-platform live services business,” said CFO Chris Suh, in a statement. “With our resilient business model, disciplined execution, and healthy underlying fundamentals, we are poised to deliver long-term growth.”
The EA player network grew to more than 600 million active accounts at quarter end. EA Sports FIFA 23 was the most successful launch in franchise history with more than 10.3 million players joining the game within the first week. EA noted there are 3.5 billion soccer fans around the world, and EA Sports has more than 200 million players.
While EA had a light launch schedule in the quarter, Wilson said that the company provided 120 content updates on 35 titles during the quarter. Those updates bring people back to games and fuel new purchases.
Based on the first four weeks following launch, EA Sports FIFA 23 units (sell-through) are up 10% and Ultimate Team players up 6% on the comparable period for FIFA 22.
Net cash (used in)/provided by operating activities was $(112) million for the quarter and $1.788 billion for the trailing twelve months.
EA repurchased 2.6 million shares for $325 million during the quarter, bringing the total for the trailing twelve months to 10.0 million shares for $1.295 billion. EA paid a cash dividend of 19 cents per share during the quarter, for a total of $53 million.
Wilson noted that the Apex Legends is driving a lot of growth in emerging markets.
Fiscal year outlook
For the fiscal year ending March 31, 2023, EA said it net revenue is expected to be approximately $7.55 billion to $7.75 billion. Change in deferred net revenue (online-enabled games) is expected to be approximately $100 million.
Net income is expected to be approximately $871 million to $934 million Diluted earnings per share is expected to be approximately $3.11 to $3.34.
Operating cash flow is expected to be approximately $1.600 billion to $1.650 billion. EA said that the U.S. dollar has strengthened since the time of its initial FY23 guidance. As a result, we now expect an foreign currency impact of approximately negative $200 million versus the initial full year net bookings guide.
Net bookings is expected to be approximately $7.650 billion to $7.850 billion, up 2% to 4% year-over-year, or 6% to 9% in constant currency.
Third quarter outlook
Net revenue for the third fiscal quarter ending December 31 is expected to be approximately $1.825 billion to $1.925 billion. Change in deferred net revenue (online-enabled games) is expected to be approximately $600 million.
Net income is expected to be approximately $120 million to $164 million. Diluted earnings per share is expected to be approximately 43 cents to 59 cents.
Net bookings are expected to be approximately $2.425 billion to $2.525 billion. For the upcoming third fiscal quarter ending December 31, analysts expect to report earnings per share of $3.01 on revenues of $2.6 billion.
Bookings reflect actual cash coming into the company, while revenues don’t include numbers that are yet to be realized, such as virtual goods that have been purchased but not used yet in-game.
EA had a public divorce with FIFA over the major soccer license. But EA is moving forward with its next game without the FIFA name and it is using EA Sports FC instead. It also announced today it has teamed up with LaLiga in a multi-year partnership. The new title coming will be called EA Sports FC.
During the fiscal third quarter, EA is launching Need for Speed Unbound on December 2.
“We have a deep slate of new titles set for the second half of the year. Entertainment is a fundamental human need and in this dynamic environment, we are focusing on our strengths – providing amazing games and live services that inspire the world to play,” Wilson said. “With our incredible talent, our growing player network, and more people than ever engaging and connecting through games, we are excited to lead and create the future of entertainment.”
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