Video games developer and publisher,
Electronic Arts Inc.
) reported first quarter 2013 non-GAAP loss of 41 cents per share,
narrower than the Zacks Consensus Estimate of a loss of 51 cents.
However, the reported loss was wider than a loss of 37 cents per
share in the year-ago quarter.
Revenues (including deferred revenue of $464.0 million) declined
6.0% year over year to $491.0 million, slightly short of management
guidance of $500.0 million. The shortfall was primarily due to
continued weak performance from the Publishing and Other (30% of
total revenue) segment, which was down 25.0% year over year in the
quarter to $146.0 million.
Distribution (4% of total revenue) was also significantly weak,
with revenues plunging 83% from the year-ago quarter to $21.0
million. However, continued strong performance from the Digital
segment partially offset these weak results. Digital revenue (66%
of total revenue) jumped 55.0% year over year to $324.0 million in
the first quarter. EA launched 7 digital titles in the reported
The growth in digital revenue was fuelled by a 34.0%
year-over-year increase in revenue from mobile and other handheld
devices. Smartphones and tablets revenue was up 86% year over year
to $52.0 million. Subscriptions, advertising and other digital
revenue grew 69% from the year-ago period, driven by
Star Wars: The Old Republic
Moreover, revenue from extra-content and free-to-play games was
up 87% from the year-ago quarter, driven by strong performance from
Mass Effect 3
The Sims Social
. Free-to-Play (17% of total revenue) was particularly strong with
year-over-year revenues increasing 156.0% in the reported
FIFA and Battlefield 3 premium were the two top performers in
FIFA Ultimate Team
contributed more than $30.0 million of digital revenue in the first
FIFA World Class Soccer
FIFA Online 2
generated more than $25.0 million in Asia in the reported quarter.
Battlefield 3 Premium service,
launched in June this year, sold approximately 1.3 million
downloads over the last two months.
Region wise, North American sales (38% of total revenue) slumped
29% year over year to $185.0 million. Sales from Europe (53% of
total revenue) climbed 17% year over year to $261.0 million. Asia
(7% of total revenue) achieved a growth of 13% from the year-ago
quarter to reach $45.0 million in the reported quarter.
On the operating line, gross profit (including stock-based
compensation but excluding other one-time items) increased 5% year
over year to $301.0 million. Gross margin increased 650 basis
points (bps) from the prior-year quarter to 61.3% due to favorable
Operating loss (excluding stock-based compensation and other one
time items) was $181.0 million as compared to a loss of $174.0
million in the year-ago quarter. Including stock-based compensation
expense, operating loss was $220.0 million in the reported
EA reported net loss (excluding stock-based compensation and
other one-time items) of $130.0 million or 41 cents per share as
compared to a loss of $123.0 million or 37 cents in the year-ago
quarter. Including stock-based compensation expense and excluding
one-time items on a tax adjusted basis, net loss was $168.0 million
or 53 cents per share in the reported quarter.
EA exited the quarter with $1.44 billion in cash, short-term
investments and marketable securities, compared with $1.85 billion
in the previous quarter. Cash outflow from operations was $244.0
million as compared with cash inflow of $287.0 million in the
Gaming & Partnership Details
EA announced a new two-tier pricing system for its massively
popular multiplayer online game (MMOG)
Star Wars: The Old Republic,
to be in effect from November this year
To rejuvenate its declining subscriber base (which went below one
million in the reported quarter) EA is offering the first tier for
a monthly subscription of $15.0. The second tier will be
free-to-play with certain restrictions on content and features.
EA recently entered into a partnership with Seoul, South
Korea-based Nexon to publish FIFA Online 3 in the country.
For the second quarter 2013, EA expects non-GAAP revenues to be
in the range of $1.05 billion to $1.10 billion. EA forecasts a
profit for the upcoming quarter with earnings expected in the range
of 7 cents to 12 cents on a non-GAAP basis. Operating expense is
expected to be approximately $600.0 million for the quarter.
For fiscal 2013, management lowered its revenue guidance. EA now
expects non-GAAP revenue to be in the range of $4.10 billion to
$4.25 billion (down from $4.30 billion) due to unfavorable foreign
exchange rate and weak performance of
. Digital is expected to grow more than 20%, while much stronger
growth is expected from mobile and free-to-play, slightly offset by
weak social and challenging conditions in the packaged goods
EA forecasts operating expenses to be approximately $2.2
billion, $50 million lower than the prior guidance. Non-GAAP
earnings are expected to be in the range of $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 announced
a new share buyback program to repurchase up to $500.0 million of
its common stock.
EA's second quarter and full year outlook is optimistic in our
view. This is particularly due to the robust product pipeline that
includes some of the most popular franchises (
Medal of Honor, Need For Speed
) expected to be released in the second half of this fiscal. The
upcoming release of
Madden NFL 13
are expected to drive revenue growth in the second quarter.
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, tough competition from
Activision Blizzard Inc.
Take-Two Interactive Software Inc.
) remains a concern over the long term.
Further, a soft video game industry outlook in the near term
particularly due to weakness in retail sales, declining subscriber
, and lack of visibility around monetization and subscriber growth
from the new pricing system keeps us cautious on the stock.
We remain Neutral over the long term (6-12 months). Currently,
Electronic Arts has a Zacks #4 Rank, which implies a 'Sell' 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.