Electronic Arts Inc.
(
EA
) is scheduled to release its fiscal third quarter 2012 results
after the closing bell on Wednesday, February 1, 2012.
Recap from Prior Quarter
In the second quarter of 2012, EA breezed past the Zacks
Consensus Estimates, both earnings and revenues, on the back of an
improved performance from its digital segment that surged 30.0%
year over year, primarily driven by growth in mobile and other
handheld revenues and downloadable content (DLC).
Additionally, strong performance of
FIFA 12
,
NCAA Football 12
,
NHL 12
,
Madden NFL 12
and
The Sims Social
propelled growth in the second quarter. FIFA 12 sold nearly 8
million units while Madden NFL 12 sold more than 3 million units in
the second quarter.
EA's non-GAAP loss (excluding one-time items but including
stock-based compensation) of 8 cents per share was much wider than
3 cents per share reported in the year-ago quarter. It was,
however, in line with the mid-point of management's guided range of
a loss of 13 cents to 3 cents.
The loss in the quarter was primarily attributed to higher
marketing expenses related to the launch of Battlefield 3 in the
quarter. Moreover, the number of title releases in the quarter was
also low compared with the year-ago quarter (5 versus 7).
For further details please read:
EA Betters Estimates, Loss Widens
Expectations from Third Quarter and FY12
For the third quarter of 2012, EA expects non-GAAP revenues in
the range of $1.55 billion to $1.65 billion. The Zacks Consensus
Estimate for the current quarter is pegged at $1.09 billion.
Non-GAAP gross profit margin is expected to be approximately
67.0%. Operating expense is expected to be $650.0 million.
For the third quarter, earnings per share (
EPS
) on a non-GAAP basis are expected in the range of 85 cents to 95
cents. The Zacks Consensus Estimate is currently pegged at 83 cents
for the quarter.
Moreover, the company raised its 2012 revenue guidance and the
lower end of the earnings guidance. Revenue on a non-GAAP basis is
projected at between $4.05 billion and $4.20 billion (previous
guidance was $3.90 billion to $4.10 billion). Earnings on a
non-GAAP basis are expected in the range of 75 cents to 90 cents
(previous guidance 70 cents to 90 cents) per share for fiscal
2012.
EA forecasts Publishing and other revenue in the range of $2.65
billion to $2.75 billion (up from $2.55 billion and $2.70 billion)
for fiscal 2012. Distribution revenue is expected to be
approximately $250.0 million and Digital revenue is expected in the
range of $1.15 billion to $1.20 billion for fiscal 2012.
For fiscal 2012, the non-GAAP gross profit margin is expected to
be approximately 63.0%. Operating expense is estimated to be $2.20
billion. EA expects to release 22 titles in fiscal 2012, with 6
titles scheduled for the third quarter.
EA, on a GAAP basis, expects operating cash flow in the range of
$250.0 million to $300.0 million for fiscal 2012.
Estimate Revision Trend
In the last thirty days, only one out of the 7 analysts covering
the stock raised estimates for the current quarter, while none
moved in the opposite direction. Over the same period, the Zacks
Consensus Estimate for the current quarter increased by a penny to
83 cents a share.
For fiscal 2012, one upward revision was noticed from the 7
analysts covering the stock. The Zacks Consensus Estimate for
fiscal 2012 is pegged at 58 cents per share.
Analysts covering the stock expect EA to be positively impacted
by the growth in the digital segment, which in the long run would
offset the weak demand for packaged goods. Moreover, recent
offerings from EA's stable are expected to boost the results of the
company. Holiday-driven spending is also expected to play a part in
the overall results of the company.
However, analysts have raised concerns regarding the slowing
sales of the
Star Wars: The Old Republic
that might act as a headwind in the near term. On the contrary,
analysts expect the game to make a strong contribution in the FY13
earnings and revenues.
Conclusion
We notice that in the past four quarters, EA has a positive
earnings surprise of 11.91%, meaning that it is likely to beat the
Zacks Consensus Estimate by the same magnitude in the current
quarter.
EA's significant exposure to digital gaming and the social and
mobile games segment will drive top-line growth in the upcoming
quarters. We believe that the company's high-quality titles,
impressive product line, increasing online exposure, social games
and portfolio diversification guarantee market share gains over the
long term.
However, the gloomy macro-economic environment, increasing
competition and weak video game sales results over the last 12
months, compel us to remain cautious in the near term. Competition
from
Activision Blizzard Inc.
(
ATVI
) and
Zynga Inc.
(
ZNGA
) are the other headwinds going forward.
Therefore, we currently have a Neutral recommendation on
Electronic Arts over the long term (for the next 3 to 6 months).
For the short term (1-3 months), we also have a Hold rating on the
stock, as indicated by the Zacks #3 Rank.
ACTIVISION BLZD (
ATVI
): Free Stock Analysis Report
ELECTR ARTS INC (
EA
): Free Stock Analysis Report
ZYNGA INC (
ZNGA
): Free Stock Analysis Report
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