Electronic Arts Inc.
) is set to release its fiscal fourth quarter 2012 results after
the market closes on Monday, May 7, 2012. In the run up to the
earnings results, no substantial movement in analysts' estimates
for the quarter was noticed. However, we note that EA has
outperformed the Zacks Consensus Estimates by an average of 14.54%
over the last 4 quarters. We expect this trend to continue in the
Looking Back at 3Q12
EA reported an impressive third quarter that was primarily aided
by a surge in revenues from the digital segment. Moreover, strong
Star Wars: The Old Republic
boosted the company's top line.
Buoyed by the above factors, revenues earned by EA (including
deferred revenue of $590.0 million) increased 17.0% year over year
to $1.65 billion, which was way ahead of the Zacks Consensus
Estimate of $1.15 billion and was at the high point of management's
guided range of $1.55 billion to $1.65 billion. EA's digital
revenue surged 79.0% year over year to $377.0 million in the third
quarter and contributed 23.0% of the total revenue.
Moreover, the company reported third quarter 2012 non-GAAP
earnings (excluding one-time items but including stock-based
compensation) of 87 cents per share, which went past the Zacks
Consensus Estimate of 83 cents. The reported earnings per share
(EPS) came in at the lower end of the management's guided range of
85 cents to 95 cents.
For further details please read:
EA's Impressive 3Q
Estimates for 4Q12 and FY12
For the fourth quarter 2012, EA expects non-GAAP revenues to be
in the range of $925.0 million to $975.0 million. The Zacks
Consensus Estimate is pegged at $1.24 billion. Non-GAAP gross
profit margin is expected to be between 66.0% and 67.0%. Operating
expense is expected to be $560.0 million.
Moreover, EA forecasts Publishing and other revenue in the range
of $500.0 million to $525.0 million for the fourth quarter.
Distribution revenue is expected to be approximately $25.0 million
and Digital revenue is projected in the range of $400.0 million to
$425.0 million in the fourth quarter.
EPS on a non-GAAP basis (excluding stock based compensation and
one time items) are expected in the range of 10 cents to 20 cents
in the current quarter. The Zacks Consensus Estimate is currently
pegged at 6 cents for the quarter.
For fiscal 2012, management expects capital spending to be
$140.0 million and non-GAAP digital revenue to be $1.2 billion.
Estimates Trend Revision
Over the past 30 days, out of the four analysts covering the
stock, only one lowered estimates, while no upward revision was
noticed. Over the same period, the Zacks Consensus Estimate for the
fourth quarter of 2012 decreased by 2 cents to 6 cents per
Likewise, for fiscal 2012, out of the 3 analysts covering the
stock, one negative revision was noticed, while no upward revision
was noticed over the last 30 days. The Zacks Consensus Estimate for
fiscal 2012 decreased by 3 cents to 45 cents over the same
Despite the release of some major titles like
Mass Effect 3
Kingdoms of Amalur: Reckoning
Tiger Woods PGA Tour 13
analysts covering the stock expect EA to face some headwinds going
forward. Moreover, lower-than-expected subscription of the
Star Wars: The Old Republic
(SWTOR) will likely act as the detrimental factor in the quarter's
However, the continued growth in the digital revenue segment
coupled with new game launches and EA's presence in the social and
mobile gaming markets are some of the positives for the company
We expect EA to report a positive quarter, aided by the release
of high-quality titles and downloadable content along with
increasing online exposure and social games. EA's shift of focus to
the digital format and its diversified portfolio, coupled with a
strong product pipeline are expected to drive top-line growth going
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
Activision Blizzard Inc.
Take-Two Interactive Software Inc.
) may act as the other headwinds going forward.
We have a Neutral recommendation on Electronic Arts over the
long term (for the next 6 to 12 months). Currently, Electronic Arts
has a Zacks #4 Rank, which implies a Sell rating in the short
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