Electronic Arts Inc.
) reported non-GAAP earnings per share of 55 cents in the fourth
quarter of 2013, up significantly from 17 cents per share earned
in the year-ago quarter. The year-over-year increase was
primarily attributed to higher revenues and margin expansion.
However, including stock-based compensation, earnings came in
at 41 cents, which lagged the Zacks Consensus Estimate of 51
cents per share.
Non-GAAP revenues increased 6.4% year over year to $1.04
billion, primarily due to robust revenue growth from the digital
segment. Reported revenue failed to beat management's guided
range of $1.025 billion to $1.125 billion and also missed the
Zacks Consensus Estimate of $1.107 billion, primarily due to
lower-than-expected sales of
Dead Space 3
Robust growth in EA's Digital revenues (up 45.4% year over
year) and Distribution (up 13.0% year over year) more than offset
the 25.1% year-over-year decline in revenues from EA's Publishing
The growth in digital revenues were fueled by a 65% increase
in full game downloads where SimCity played a crucial part.
Moreover, extra content and free-to-play revenues increased 45.0%
on a year-over-year basis primarily driven by
FIFA Ultimate Team
Star Wars: The Old Republic
. EA's mobile business also recorded 21.0% year-over-year jump in
revenues. Additionally, advertising and other digital revenue
also contributed to the 54% increase in revenues.
Region wise, North American sales (42.0% of total revenue)
decreased 6% year over year to $437.0 million. Sales from Europe
(54% of total revenue) increased 27.0% year over year to $557.0
million. Asia (4% of total revenue) plunged 36% from the year-ago
quarter to reach $46.0 million in the reported quarter.
EA's non-GAAP gross margin expanded 970 basis points year over
year to 74.6% while gross profit increased 22.5% during the same
period to $773 million. The solid margin expansion was primarily
led by higher subscriptions from Battlefield 3 Premium and
reduction in online support cost.
Operating expenses, as a percentage of revenue, declined to
51.9% in the fourth quarter from 56.7% in the year-ago quarter.
Including stock-based compensation, the percentage decline was
490 basis points (bps).
These reductions in costs led to a substantial increase in
operating income for EA. On a non-GAAP basis, EA's operating
income increased to $233.0 million up from $77 million in the
year-ago quarter. Including stock-based compensation, operating
income came in at $191.0 million versus $36.0 million in the
EA's non-GAAP net income came in at $169 million which was up
from $56 million while net margin came at 16.3% compared to 5.7%
in the year-ago quarter. Including stock based compensation of
$42 million, EA reported net income of $127 million.
Balance Sheet and Cash Flow
EA exited the quarter with $1.68 billion in cash, short-term
investments and marketable securities compared with $1.43 billion
in the previous quarter. Cash flow from operations was $233.0
million compared to $363.0 million in the previous quarter.
During the reported quarter, EA repurchased 1 million shares for
For the first quarter of 2014, EA expects to generate non-GAAP
revenues of approximately $450.0 million. EA expects non-GAAP
loss per share to be 62 cents, wider than the Zacks Consensus
Estimate of a loss of 46 cents. Non-GAAP operating expense is
expected to be $530.0 million.
The company also provided fiscal 2014 guidance. EA expects to
generate non-GAAP revenues of approximately $4.0 billion.
Packaged goods revenue is expected to increase 7% year over year,
driven by Battlefield 4 while digital revenues is expected to
increase 4% year over year. The gross margin is expected to be
66% due to higher mix of packaged goods revenues. EA expects its
non-GAAP earnings to be $1.20 per share, higher than the Zacks
Consensus Estimate of 67 cents.
EA has planned to release 11 titles in 2014, which includes
. The company is expected to release 15 mobile titles for
) iOS and
) Android platforms.
We believe that EA's strong digital portfolio and continuing
growth in the free-to-play and online segment will drive top-line
growth going forward. Moreover, the company's efforts to optimize
costs through overhead reductions will be beneficial going
forward. The company's licensing agreement with
) to publish and market games based on Star Wars should also act
in favor, as it will be gaining a new IP and a franchise.
However, we believe that EA faces a number of headwinds that
include a soft video game industry performance, particularly due
to weakness in retail sales amid an aging console system
lifecycle. Competition from other game makers is also a headwind
Currently, EA has a Zacks Rank #4 (Sell).
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