Video game developer and publisher
Electronic Arts Inc.
) earned a penny in the second quarter of 2013, better than the
Zacks Consensus Estimate of a break-even. The reported earnings
were much better than a loss of 8 cents per share in the year-ago
Revenues (including deferred revenue of $369.0 million)
increased 4.0% year over year to $1.08 billion, which inched past
the mid-point of management's guided range of $1.05 billion to
The upside was primarily attributable to continued strong
performance from the Digital segment. Digital revenue (29% of
total revenue) jumped 45.0% year over year to $314.0 million in
the second quarter.
The growth in digital revenue was fuelled by a 60.0%
year-over-year increase in revenue from mobile and other handheld
devices. Smartphones and tablets revenue was up 120% year over
year to $66.0 million. Subscriptions, advertising and other
digital revenue grew 48% from the year-ago period, driven by
Star Wars: The Old Republic
Moreover, revenue from extra-content and free-to-play games
was up 34% from the year-ago quarter, driven by strong
Mass Effect 3
The strong digital growth fully offset a continued weak
performance from the Publishing and Other (69% of total revenue)
segment, which was down 5.0% year over year in the quarter to
$744.0 million. Distribution (2% of total revenue) was also
significantly weak, with revenues plunging 29% from the year-ago
quarter to $22.0 million.
Region wise, North American sales (46% of total revenue)
increased 6% year over year to $508.0 million. Sales from Europe
(57% of total revenue) remained flat on a year-over-year basis at
$503.0 million. Asia (7% of total revenue) achieved a growth of
35% from the year-ago quarter to reach $69.0 million in the
Gross profit (including stock-based compensation but excluding
other one-time items) increased 6% year over year to $649.0
million. Gross margin increased 100 basis points ("bps") from the
prior-year quarter to 60.0% due to favorable product mix.
Operating income (excluding stock-based compensation and other
one-time items) was $68.0 million compared with $25.0 million in
the year-ago quarter. Including stock-based compensation expense,
operating income was $24.0 million in the reported quarter.
EA reported net income (excluding stock-based compensation and
other one-time items) of $49.0 million or 15 cents per share
compared with $17.0 million or 5 cents in the year-ago
EA exited the quarter with $1.22 billion in cash, short-term
investments and marketable securities, compared with $1.44
billion in the previous quarter. Cash outflow from operations was
$28.0 million compared with cash outflow of $211.0 million in the
previous quarter. During the reported quarter, EA repurchased 8.4
million shares for $108.0 million.
For the third quarter 2013, EA expects non-GAAP revenues to be
in the range of $1.25 billion to $1.35 billion. EA forecasts a
profit for the upcoming quarter with earnings expected in the
range of 50 cents to 60 cents per share on a non-GAAP basis.
Operating expenses are expected to be less than $600.0 million
for the forthcoming quarter.
For fiscal 2013, management lowered its revenue guidance. EA
now expects non-GAAP revenue to be in the range of $4.05 billion
to $4.20 billion (down from $4.10 to $4.20 billion) due to
weaker-than-expected performance of
Medal of Honor Warfighter
EA forecasts operating expenses of approximately $2.2 billion.
Non-GAAP earnings are expected to be in the range of $1.00 -
$1.15 (down from $1.05-$1.20) per share for fiscal 2013.
EA expects operating cash flow of at least $400.0 million and
capital expenditure of $100.0 million. Hence, free cash flow is
expected to be around $300.0 million for fiscal 2013.
EA's lowered outlook disappoints us. This is particularly due
to the robust product pipeline that includes some of the most
popular franchises expected to be released in the upcoming
holiday season. Moreover, EA's strong digital portfolio and
continuing growth in the free-to-play and online segment are
expected to drive top-line growth over the long term.
However, cancellation of
and weak customer response to
Medal of Honor Warfighter
will hurt top-line in the near term. Moreover, tough competition
Activision Blizzard Inc.
Take-Two Interactive Software Inc.
) remains a concern going forward.
Further, a soft video game industry outlook in the near term
particularly due to weakness in retail sales, and lack of
visibility around monetization and subscriber growth from the new
pricing system keeps us cautious on the stock.
We remain Neutral on the stock over the long term (6-12
months). Currently, Electronic Arts has a Zacks #3 Rank, which
implies a Hold rating in the short term.
ACTIVISION BLZD (ATVI): Free Stock Analysis
ELECTR ARTS INC (EA): Free Stock Analysis
TAKE-TWO INTER (TTWO): Free Stock Analysis
ZYNGA INC (ZNGA): Free Stock Analysis Report
To read this article on Zacks.com click here.