EA, TTWO on Very Different Paths After Earnings

by Adam Benjamin | October 30, 2013 11:49 am

EA, TTWO on Very Different Paths After Earnings

Electronic Arts (EA[1]) and Take Two Interactive (TTWO[2]) reported earnings after the bell, yesterday. Both companies beat estimates, but looking into the details, we see two companies playing vastly different games.

EA Earnings

EA, the video game company everyone loves to hate, brought in earnings [3]of 33 cents per share — beating estimates of 12 cents, and more than doubling last year’s EPS of 15 cents. Revenues came in at $1.04 billion, down slightly year-over-year. The company reaffirmed its full-year revenue guidance of $4 billion, and raised full-year EPS guidance from $1.20 per share to $1.25.

Good news, right? Yes, but there are some causes for concern. Sales of Madden NFL 25 and FIFA 14  which represent two of EA’s biggest franchises — were nowhere to be found. The company slyly mentioned that its EA Sports Ultimate Team revenues were up, but the Ultimate Team titles are based on digital trading cards, and are entirely different games. The impending release of new consoles could have created a backlog of buyers waiting for the Xbox One or PS4 versions of Madden and FIFA … but we won’t know for sure until those consoles are released next month.

However, EA did tout its success with mobile games. Plants vs. Zombies 2 outsold its predecessor in a mere two months. And Simpsons: Tapped Out has been in the top 20 most downloaded games nearly the entire time since its release. That certainly doesn’t mean the company has “solved” mobile gaming — nor is it a guarantee of future hits — but it’s good news, especially when console titles are falling.

TTWO Earnings

Take-Two Interactive’s earnings [4]can be summed up in three words and a Roman numeral: Grand Theft Auto V.

TTWO sold-in roughly 29 million copies of the game, and made $800 million in the first 24 hours. “Sold-in” refers to the number of games sold to retailers, and doesn’t necessarily reflect the number of copies bought by consumers. Still, sales were huge.

As a result, the company posted earnings per share of $2.49 — smashing estimates of $1.48, and demolishing the year-over-year figure of 11 cents. Revenue came in at $1.27 billion, up from $288 million YOY.

Anticipating continued sales and future hits, the company boosted its Q3 guidance from EPS of $1.20 to $1.35, and FY ’14 EPS from $3.50 to $3.75.

The Results

EA shot up about 8% today, cooling down later in the day, while TTWO dropped sharply before climbing back up to about a 3% loss. For EA, investors seem to be happy about the earnings beat and the success in the mobile sector. And TTWO might just be suffering from a case of “buy the rumor, sell the news.”

What’s interesting is that EA and Take-Two are having very different kinds of gaming success. TTWO is riding the success of a few core console franchises, but EA’s established franchises have started to lag, forcing the company to focus more on mobile games. Perhaps the Xbox One and PS4 releases will prove otherwise, but for now, mobile seems to be EA’s strength.

If the next generation of consoles doesn’t catch on, that puts TTWO in the more precarious position. The company has no real mobile or handheld gaming presence. And even if the consoles do become hits (EA predicted combined sales[5] of about 10 million for this year), mobile gaming will still be a powerful force.

So, while both companies posted impressive beats, these numbers come at the end of a console generation, and tell us little about what’s to come. Look to next quarter’s earnings reports — which should give a sense the new consoles’ effects on each company — to get a better sense of EA’s and TTWO’s long-term prospects.

Adam Benjamin is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. EA: http://studio-5.financialcontent.com/investplace/quote?Symbol=EA
  2. TTWO: http://studio-5.financialcontent.com/investplace/quote?Symbol=TTWO
  3. earnings : http://investor.ea.com/releasedetail.cfm?ReleaseID=801346
  4. earnings : http://ir.take2games.com/phoenix.zhtml?c=86428&p=irol-newsArticle&ID=1869835&highlight=
  5. EA predicted combined sales: http://www.ign.com/articles/2013/10/30/ea-predicts-ps4-and-xbox-one-launch-sales

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