Electronic Arts Earnings Preview: Strong Portfolio To Support Digital Growth

Jan 28 2014, 7:20am CST | by

Electronic Arts Earnings Preview: Strong Portfolio To Support Digital Growth


Electronic Arts is expected to announce earnings for the third fiscal quarter of 2013 on Tuesday, January 28. The video game maker had three titles on the list of NPD‘s top 10 games for December in the U.S. The company could make long-term gains from strong holiday sales of the next generation Sony and Microsoft consoles. Despite glitches reported by gamers, EA’s first person shooter game, Battlefield 4, was the second highest selling game during the holiday month, while sports-based titles Madden NFL 25 and FIFA 14 came in fourth and ninth places, respectively./>

The research firm also reported that software sales fell 17% through the holiday season, but that shouldn’t deter EA as it has been able to maintain growth in a cyclically low industry through the digital domain (NPD figures do not include digital sales). Digital streams like extra-downloadable content, full game downloads, in-game advertising and mobile and tablet games accounted for 65% of EA’s GAAP revenue in the September quarter, up 11% over the prior year. Growth in these streams allowed the company to beat its own revenue and EPS guidance for the second fiscal quarter.

EA’s stock has been on a roller-coaster ride over the last two months. The stock plummeted after the company admitted there were problems with Battlefield 4, but has since recovered on growth prospects for the highly anticipated Titanfall title, which is expected to be released in the coming months. Our $28 price estimate for Electronic Arts’ stock implies a premium of 10% to the current market price.

See our complete analysis of Electronic Arts stock here

PR Issues

Electronic Arts has struggled with public relations; it was named by Consumerist as the Worst Company in America in each of the last two years. This image has not been helped by events over the last two months. EA faces a class action lawsuit regarding materially false and misleading statements issued by the company and has received criticism over its online marketing practices. Vice President Jeff Brown, who handled Public Relations, recently left EA after the Battlefield 4 fiasco.

However, we believe that these events will not have a material impact on EA’s financial results. The company has shown strong growth in the digital domain, improving margins and efficiency, and has a strong portfolio of games. Its exclusive licensing agreements with NFL and FIFA allow it to maintain a near-monopoly in the sports games domain. American football based game NFL is one of the most popular games in the U.S. and was named the third-best selling game of 2013 in the country by NPD. FIFA is more popular outside the U.S.; the soccer-based game was the fourth highest selling game in the world last year, accounting for 4% of the units sold worldwide.

FIFA is also a big contributor to digital sales, with FIFA Online 3 driving a 35% increase in DLC revenues last quarter. Digital net revenue from the FIFA franchise in the first half of fiscal 2014 was up 25% over the previous year. The FIFA World Cup is scheduled to take place in Brazil this year, with over 500,000 fans from all over the world expected to attend the event. Sales of the annual FIFA franchise went up 25% after the last world cup in 2010. We expect a similar trend this time, with additional gains from the DLC stream.

Digital growth should also allow for margin expansion. The cost of revenue for physical products sold is about 50% of net revenue while the cost of revenue for online and digital services is just 30%. EA’s gross margin improved from 60.1% in the second quarter of fiscal 2012 to 61.7% in 2013. Management expects to generate over 40% of fiscal year revenues from digital streams. Going forward, we expect margins to increase to about 68% over the long term as digital contribution increases further.

See More at Trefis | View Interactive S&P Capital IQ Analyses (Powered by Trefis)

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

'Petitioners Village' -- the price for seeking justice in China
Beijing, Nov 29 (IANS/EFE) More than two hours away from the centre of Beijing is the "petitioners village", a group of huts that belong to citizens demanding justice in China and who are unable to find work or decent housing as they have been blacklisted by the regime.
 
 
(After 12) 'Petitioners Village' -- the price for seeking justice in China
Beijing, Nov 29 (IANS/EFE) More than two hours away from the centre of Beijing is the "petitioners village", a group of huts that belong to citizens demanding justice in China and who are unable to find work or decent housing as they have been blacklisted by the regime.
 
 
Eel-like robotic fish to scan inaccessible ocean areas
Singapore, Nov 29 (IANS) Inspired by Anguilliform fishes due to their superior flexibility compared with other fish species, a team of scientists in Singapore developed and built a prototype of an eel-like robotic fish.
 
 
NASA's Orion all set for Dec 4 test flight
Washington, Nov 29 (IANS) Designed to carry astronauts to deep space destinations like Mars, NASA's Orion spacecraft is all set to blast off for its first test flight Dec 4.
 
 
 

Latest from the Network

Abigail Breslin slams ex Michael Clifford
Abigail Breslin has slammed her ex, Michael Clifford. The 'My Sister's Keeper' actress went on a date with the 5 Seconds of Summer guitarist last year but it seems as though it didn't end well after she released a song...
Read more on Celebrity Balla
 
Kevin Bacon to sizzle in Jungle
Kevin Bacon is to star in 'Jungle'. The 56-year-old actor will appear in the survival drama, which is based on the true story of Yossi Ghinsberg, an adventurer who found himself lost in the Amazon rainforest for three...
Read more on Movie Balla
 
Mickey Rourke to return to boxing at 62
Mickey Rourke will return to boxing aged 62. The actor will come out of retirement and step into the ring tonight (11.28.14) for the first time in 20 years as he competes against 29-year-old Elliot Seymour. He said: ''...
Read more on Celebrity Balla
 
Kristen Stewart: Actors are isolated
Kristen Stewart claims actors become ''isolated'' because of their fame. The 24-year-old actress has become one of the biggest movie stars in the world following her portrayal of Bella Swan in the 'Twilight' franchise...
Read more on Celebrity Balla
 
Burt Reynolds to sell memorabilia
Burt Reynolds is selling over 600 personal items to stave off bankruptcy. The 78-year-old Hollywood star is reportedly struggling financially so will see awards, cars and costumes go under the hammer in Las Vegas next...
Read more on Celebrity Balla
 
Eddie Redmayne's fear of failure
Eddie Redmayne has a fear of failure. The 'Theory of Everything' star has admitted that like fellow actor, Rachel Weisz, he worries about ever getting hired again. He said: ''I was reading an interview with Rachel Weisz...
Read more on Celebrity Balla
 
Where to Find Black Friday Car Deals
The Black Friday Car Sales events have gained traction over the past couple of years. This year several major brands ran nation-wide commercials announcing their Car Black Friday deals. In the beginning it was creative...
Read more on Auto Balla
 
Indian Aces win inaugural IPTL tie
Manila, Nov 28 (IANS) The much-awaited inaugural International Premier Tennis League (IPTL) got off to a flying start with the Indian Aces notching an impressive 26-16 first victory against the Singapore Slammers at...
Read more on Sport Balla
 
Australian navy's largest ship commissioned
Canberra, Nov 28 (IANS) HMAS Canberra, a 27,000-tonne landing helicopter dock (LHD), was commissioned Friday, providing the Royal Australian Navy (RAN) with one of the world's most capable and sophisticated amphibious...
Read more on Politics Balla
 
Sindhu, Prannoy enter Macau Open semis
Macau, Nov 28 (IANS) Indian shuttlers P.V. Sindhu and H.S. Prannoy came out with contrasting wins to enter their respective semi-finals at the $120,000 Macau Open Grand Prix Gold here Friday. While defending champion...
Read more on Sport Balla