The upcoming earnings of Electronic Arts Inc. will show how spending on video games has held up in the current economic climate.
Tuesday afternoon’s report kicks off the earnings season for major publishers, with reports from Take-Two Interactive Software Inc. TTWO,
and Activision Blizzard Inc. ATV,
to come next week. But hey hey
it might be a bit of a special case, as consumers may be less inclined to reduce their spending on the company’s trademarked sports titles.
Here’s what to expect when EA releases its results after the closing bell.
what to expect
Earnings: Analysts tracked by FactSet expect EA to post $3.05 a share in adjusted earnings for the fiscal third quarter, down from $3.17 a share a year earlier. According to Estimize, which compiles projections from hedge funds, academics and others, the average estimate calls for $3.00 per share.
Income: The FactSet consensus calls for revenue of $1.93 billion, down from $1.8 billion a year earlier.
Analysts expect EA’s reserves, which represent deferred revenue, to come in at $2.48 billion, down from $2.58 billion a year earlier. Those who contributed to Estimize projected $2.46 billion.
Stock movement: Shares of EA have risen after each of the company’s last five earnings reports. The stock is down 2% over the past 12 months, though it’s up more than 5% to start 2023.
Of the 32 analysts tracked by FactSet that cover EA stock, 23 have buy ratings and nine have hold ratings, with an average target price of $147.74.
What to watch out for
While BMO Capital Markets analyst Gerrick Johnson expects EA’s results to show impacts of economic pressures on consumer portfolios, he also believes the company has “resilient” core stocks.
“We believe that EA’s sports games, in particular, generate sticky bookings,” he wrote. “As gamers narrow their range of title purchases due to budget pressure, we believe they will stick with core multiplayer games like ‘Madden’ and ‘FIFA.’ Meanwhile, spending on these games, with passionate fans, may have exceeded expectations.”
Wedbush analyst Nick McKay said Wall Street’s net booking expectations for the latest quarter “may be a bit high,” especially “if ‘Apex Legends’ took a significant hit from competition from vacation”.
He will also be watching to see how the company benefited from the World Cup.
“While FIFA Ultimate Team received a lift from the World Cup, several key teams left the real-world tournament relatively early, and their fan bases could follow suit in FUT. [FIFA Ultimate Team]McKay wrote.
Truist Securities’ Matthew Thornton has his eyes beyond the December quarter as he hopes for clues about the coming fiscal year.
“We expect the key investor focus to be any color in FY24, where we (and we believe investors) view the consensus as a slightly high hurdle,” he wrote.
Thornton added that “the seasonality is historically less favorable” from February to May “given limited visibility of the year-ahead list.” He believes that will be “the case this year unless the company provides guidance on the F3Q call.”