Electronic Arts Inc.
) reported non-GAAP loss of 40 cents per share in the first
quarter of 2014, which not only improved from the year-ago
quarter's loss of 41 cents but was also narrower than
management's expected loss of 62 cents.
However, including stock-based compensation, the loss came in
at 50 cents, which was narrower than the Zacks Consensus Estimate
of a loss of 73 cents per share.
Non-GAAP revenues came in at $495 million, up 0.8% from the
year-ago quarter, primarily due to robust revenue growth from the
Digital segment. Reported revenues not only beat management's
guidance of $450.0 million but were significantly ahead of the
Zacks Consensus Estimate of $460.0 million, primarily due to
strong sales of
and other titles.
Solid performance from EA's Digital segment, which increased
16.7% year over year, more than offset the 30.1% year-over-year
slump in revenues in EA's Publishing segment and 28.6% decline in
the Distribution segment.
The improvement in digital revenues was fueled by a 35.0%
increase in extra content and free-to-play segment. Revenues were
positively impacted by strong sales of
FIFA Ultimate Team
Star Wars: The Old Republic
FIFA Online 3
Mobile business' revenues improved 30% from the year-ago
quarter in which games such as
The Simpsons: Tapped Out
Real Racing 3
were the main contributors.
Moreover, buoyed by the robust performance of
The Sims 3
, full game downloads recorded a 12.0% year-over-year growth.
However, advertising and other digital revenues declined 25.0%
from the year-ago quarter.
Region wise, North American sales (41.4% of total revenue)
increased 11.0% year over year to $205.0 million while
international revenues (58.6% of total revenue) declined 5% from
the year-ago quarter to $290.0 million.
EA's non-GAAP gross margin expanded 230 basis points (bps)
year over year to 63.8% while gross profit increased 4.6% during
the same period to $316.0 million. The solid margin expansion was
primarily led by robust digital revenues and reduction in online
Operating expenses, as a percentage of revenue, declined to
96.4% in the first quarter from 98.4% in the year-ago
On a non-GAAP basis, EA's reported operating loss of $161.0
million, which improved from the year-ago quarter's loss of
$181.0 million. Including stock-based compensation, operating
loss came in at $194.0 million versus $220.0 million loss
reported in the year-ago quarter.
EA's non-GAAP net loss came in at $121 million, narrowed from
a loss of $130 million in the year-ago quarter. Including stock
based compensation, EA reported net loss of $154 million.
Balance Sheet and Cash Flow
EA exited the quarter with $1.41 billion in cash, short-term
investments compared with $1.68 billion in the previous quarter.
EA reported $248.0 million of cash used in operating activities.
During the reported quarter, EA did not repurchase any
For the second quarter of 2014, EA expects to generate
non-GAAP revenues of approximately $975.0 million (down 10.0%
from the year-ago quarter). EA expects non-GAAP earnings per
share to be 12 cents (down 20.0% from the year-ago quarter).
Non-GAAP operating expense is expected to be $550.0 million,
impacted by phasing of operating expenses from the first quarter.
During the quarter, EA is expected to release five major
titles, including a free-to-play game, and five mobile
The company reiterated fiscal 2014 guidance. EA expects to
generate non-GAAP revenues of approximately $4.0 billion which
includes $2.2 billion from Publishing and $1.7 billion from the
Digital segment. EA expects its Distribution segment to generate
$100 million in revenues.
EA expects its FY14 non-GAAP earnings to be $1.20 per share.
The company expects its gross margins to be 66.0% while operating
expenses is projected at $2.15 billion. EA has planned to release
11 titles in 2014, which includes
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
Additionally, the company is gaining traction in the tablet
and smartphone market, though games released on
) iOS and
) platforms are commendable. Further, EA's partnership with
Tencent in China is expected to bode well for the company in the
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
Competition from other game makers, such as
), is also a headwind, going forward. Moreover, the company's
tepid second-quarter guidance is expected to remain an
Currently, EA has a Zacks Rank #2 (Buy).
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