It’s almost game time for Electronic Arts Inc. (NASDAQ:EA) stock as the company gets ready to head into the earnings confessional. However, it’s shaping up to be a rough first quarter.
The Street expects EA to lose 2 cents per share when earnings are announced after the market close on Tuesday. That’s a far cry from the 15 cents per-share profit it reported in the same quarter last year.
What’s more, they’re forecasting a 6% drop in revenues, to $650 million from $693 million in the year-ago quarter.
While this quarter isn’t traditionally a great one for the gaming industry, this reporting period will be especially difficult for EA stock because the company is up against a tough year-ago quarter. EA got a big boost in the form of $31 million in deferred income from Chinese players’ spending in FIFA Online 3 as well as run-over sales from Battlefield Hardline.
This quarter? EA didn’t have any major releases aside from Mirror’s Edge Catalyst.
Not All Bad News for EA Earnings
However, if you’re invested in EA stock, all is certainly not lost.
While this quarter isn’t going to be a great one for EA earnings, the Street has already worked that into expectations. The stock jumped on a top- and bottom-line beat in May, and has continued trending upward even through this sleepy quarter. It gained 11% year to date, including nearly 40% from a February low, and has been using its 50-day moving average as support since May.
Further, analyst sentiment remains high — currently there are no sell ratings, and only four holds, compared to 17 buys. Just this week, Vetr increased its rating from a “hold” to a “buy.”
But for the long-term investor, it’s the pipeline that matters. And EA tends to dominate in the top three gaming categories — shooters, adventure games and sports. While it may not have released a blockbuster in its first fiscal quarter, Electronic Arts has a bevy of games coming out later this year, including the latest FIFA and Madden games. The previous iterations of both games were among last year’s top-10 best-selling video games. Then there’s Titanfall 2 and Battlefield 1 due out in the fall.
Importantly, keep an eye on digital sales this quarter, as last year saw a huge uptick in EA’s digital revenue and last quarter’s digital sales totalled more than half of EA’s total revenue. And while EA released The Secret Life of Pets on Apple Inc.’s (NASDAQ:AAPL) App Store at the end of June, it’s a free app and whatever in-game sales came from it won’t be enough to offset the dearth in physical disc sales.
Interestingly enough, though, this is the last quarter where EA will reports earnings focusing on non-GAAP metrics, bowing to pressure from the the Securities and Exchange Commission. These metrics, the SEC argues, could “make earnings appear better than they are.”
While this won’t have a material effect on the company’s actual earnings, it could make it more difficult to compare quarters. Still, according to Robert W. Baird & Co. analyst Colin Sebastian, cash is king.
As of this writing, Jessica Loder did not hold a position in any of the aforementioned securities.
