EA Surprises with Lower than Expected Loss
Author: Kyle Mallon, Published: November 1, 2016 at 8:30pm, Category: Earnings Review
Electronic Arts Inc. (NASDAQ:EA) released an optimistic earnings report for the second fiscal quarter today. Despite missing revenue expectations for the quarter by $17 million, the company reported a lower earnings loss than expected, beating analyst estimates by $.04 per share.
The success is partly attributed to the loaded slate of new releases this quarter, including popular sports titles NHL 17, Madden 17, and most significantly, FIFA 17, which launched four days prior to the earnings announcement. FIFA 17 has already outperformed sales expectations this week and management expects this trend to have a positive impact on performance in the third fiscal quarter. Management increased guidance for both revenue and earnings for full 2017 fiscal year.
The Digital Products Segment continues to see success, a trend that has been hard to ignore over the past several years. Each year more gamers make the switch to digital content and online sources, spending less time taking trips to the store or ordering online, likely due to the convenience and speed factors. This quarter saw a record 63% of revenue coming from digital products.
Our Electronic Arts earnings model has been updated to incorporate this quarter’s results and the new guidance provided today for 3Q17. This quarter also marked the first in which EA no longer reported Non-GAAP data due to stricter SEC regulations on earnings reports. The company still provided guidance on Non-GAAP data in their report, and this information is included in the updated model.
Management Guidance – 3Q17
Source: investor.ea.com (Fiscal second quarter release)
The success is partly attributed to the loaded slate of new releases this quarter, including popular sports titles NHL 17, Madden 17, and most significantly, FIFA 17, which launched four days prior to the earnings announcement. FIFA 17 has already outperformed sales expectations this week and management expects this trend to have a positive impact on performance in the third fiscal quarter. Management increased guidance for both revenue and earnings for full 2017 fiscal year.
The Digital Products Segment continues to see success, a trend that has been hard to ignore over the past several years. Each year more gamers make the switch to digital content and online sources, spending less time taking trips to the store or ordering online, likely due to the convenience and speed factors. This quarter saw a record 63% of revenue coming from digital products.
Our Electronic Arts earnings model has been updated to incorporate this quarter’s results and the new guidance provided today for 3Q17. This quarter also marked the first in which EA no longer reported Non-GAAP data due to stricter SEC regulations on earnings reports. The company still provided guidance on Non-GAAP data in their report, and this information is included in the updated model.
Management Guidance – 3Q17
- GAAP revenue of $1,125 million (5% increase YoY) driven by continued sales from major title releases in 2Q17
- Non-GAAP revenue deferral of $910 million
- GAAP cost of revenue of $532 million
- GAAP operating expenses of $652 million, driven by continued increase in R&D spending
- GAAP diluted loss per share of $0.17
- GAAP diluted share count of 304 million
- Operating Cash Flow of $1.2 billion for fiscal year
- Annual revenue increase to $4.775 billion, earnings increase to $2.69 per share
Source: investor.ea.com (Fiscal second quarter release)
The author of this article has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in this article represent the author’s opinions. Click here to visit Kyle's contributor page.
