Electronic Arts (EA) to Report Q3 Earnings: What's in Store?

Electronic ArtsEA is scheduled to report third-quarter fiscal 2019 results on Feb 5.

The company beat the Zack Consensus Estimate in all the trailing four quarters, with the average positive surprise being 104.51%.

In the las t report ed quarter, EA reported earnings of 83 cents per share against a loss of 7 cents per share in the year-ago quarter.

Revenues surged 34% year over year to $1.29 billion and were better than the guided figure of $1.27 billion. Net bookings increased 3.6% year over year to $1.22 billion. Digital net bookings were $637 million in the second quarter, up 10% year over year.

For the third quarter, the company expects GAAP revenues of $1.38 billion. Moreover, EA expects earnings of 61 cents per share.

The Zacks Consensus Estimate for third-quarter earnings has declined 4.9% in the past 30 days to $1.93 per share. Earnings are estimated to decline 13.1% year over year. Further, the consensus mark for revenues is pegged at $1.75 billion, down roughly 11.2% from the year-ago quarter.

Let's see how things are shaping up prior to this announcement.

Electronic Arts Inc. Price and EPS Surprise

Electronic Arts Inc. Price and EPS Surprise | Electronic Arts Inc. Quote

Digital Business, Mobile & Live Services are Key Catalysts

EA continues to derive most of its revenues from digital business as consumers are increasingly shifting toward digital versions of video games from traditional devices. Notably, digital net revenues (60.7% of revenues) increased 13.2% to $780 million in fiscal second-quarter 2019.

EA's digital revenues benefited from the robust performance of FIFA 19 , FIFA and Madden Ultimate Teams . Notably, FIFA is an important growth driver for EA. The FIFA franchise overall has sold more than 260 million copies worldwide to date.

Moreover, the company launched EA SPORTS NHL 19 '99 Edition ' globally for a limited time as a digital download on Nov 16. We expect EA's digital business net bookings to benefit from the same. Management expects net bookings to be $1.73 billion.

Revenues from mobile grew 39% year over year to $220 million in the last reported quarter. Net bookings increased 1.3% year over year to $152 million driven by growth in FIFA franchise, which was offset by decline in Madden mobile. Notably, management noted that FIFA Mobile witnessed a significant increase in daily active players year over year in the reported quarter.

EA launched Command & Conquer: Rivals globally for mobile players in the to-be reported quarter, which marks the company's first venture into mobile e-sports. Management stated that the addition of this game is expected to drive mobile revenues in the to-be reported quarter.

In the last reported quarter, FIFA , Madden and Madden Ultimate Teams , and The Sims 4 contributed majorly to Live services net bookings, which were up 5.8% year over year to $328 million. Revenues from Live services (32%) increased 1% to $412 million.

EA also expanded its product portfolio with the launch of The Sims 4 Get Famous in the to-be reported quarter. Notably, The Sims 4 monthly average players grew year over year and approximately 30 million expansion packs have been downloaded life-to-date. However, the company revised its guidance for revenues growth in live services to be flat year over year at 5%.

Competition Intense

EA released the highly-anticipated Battlefield V in November. Notably, the delay in the launch of the game created a loophole in the company's game portfolio. The game lost to Activision's ATVICall of Duty: Black Ops 4 and Take Two Interactive's TTWORed Dead Redemption 2 , in attracting holiday buyers.

Moreover, the company revised fiscal 2019 net bookings guidance to $5.20 billion from $5.55 billion due to lackluster sales of Battlefield V .

Further, increasing popularity of Activision's Overwatch League, which is expected to drive user base and engagement levels, remains a concern for EA at a time when all the other gaming companies are heavily investing in the growing e-sports market.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided.

EA has a Zacks Rank #4 and an Earnings ESP of +0.48%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

A Stock That Warrants a Look

Here is a stock you may want to consider as our model shows that it has the right combination of elements to deliver an earnings beat in the to-be-reported quarter.

Twitter TWTR has an Earnings ESP of +13.03% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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