Electronic Arts (NASDAQ:EA), a publisher and creator of video games, was certainly not one of the businesses that most analysts had anticipated would fare well in the face of the economy’s impending recession and the bear market mentality that has persisted for some time.
One of the industry’s pioneers, though, was able to produce decent performance year over year and year to date that can compete with many defensively focused equities.
The veteran of the industry found itself in a challenging situation with the odds largely stacked against it, as the lockdown-fueled boom in the video game market was beginning to show signs of slowing down as a result of consumers cutting back on discretionary spending in anticipation of challenging times.
Even yet, the company surprised observers with its recent earnings, beating both top and bottom line projections while also highlighting certain unsettling industry trends in its forward-looking statements.
Surprising Earnings Results
The California-based video game juggernaut released Tuesday night what could be seen as an unexpectedly positive earnings report.
In comparison to the same period last year, the company’s net income increased to $311 million for the three months that concluded on June 30th.
Additionally, it reported earnings of $1.11 per share, up from $0.71 per share during the same period last year.
Due to the way EA’s game release pipeline is organized, results seem to be predominantly driven by growth in the live services category as full game sales winded down. In actuality, the complete gaming segment’s net bookings decreased 41% and were set at $165 million.
As the next stage in the video game industry’s development, live services currently account for 73 percent of Electronic Arts’ total net bookings.
When compared to the same quarter last year, live services net bookings increased by 8%, and by 20% when the preceding 12 months are taken into account.
Overall sales for the entire year increased by 24.2 percent to just under $7 billion, and net bookings increased by 21.4 percent to $7.5 billion.
The expansion of the EA player network to approximately 600 million active accounts was one of the earnings release’s other standout features.
These are all indications that the macroeconomic headwinds have, at least for the time being, mostly avoided the seasoned company.
However, EA will continue to experience problems in the future because of the full-year and next quarter’s guidance showing indications of the rapidly deteriorating macroeconomic situation.
EA forecasts revenue of $1.85 billion to $1.9 billion, net income of $220 million to $242 million, and earnings per share of $0.78 to $0.86 for the second quarter of 2023. This is below the $1.83 billion in revenue, $404 million in net income, and $0.84 per share predicted by analysts.
The company forecasted revenue of between $7.6 billion and $7.8 billion for the entire year of 2023, with net income forecasted to be between $793 million and $815 million.
The remaining profits per share are estimated to be in the $2.79 to $2.87 range. Analyst predictions for revenues of roughly $7.98 billion, net income of $2.02 billion, and profits per share of $7.17 fell just a little shy of reality.
Electronic Arts Has Become a Top Target
There may be another, more intriguing explanation for why EA stockholders opted to support the business through these trying times. Since Microsoft (MSFT) acquired Activision Blizzard at the beginning of the year in a deal that is still pending regulatory approval, Electronic Arts has probably become the most sought-after collection of assets in the sector.
This fact, together with the past period’s rising industry consolidation, spurred several questions regarding the iconic company’s future as a stand-alone developer and publisher.
The Bottom Line
This company offers investors two strong advantages – it is a strong takeover target and it is better equipped than many of its competitors to deal with unfavorable macroeconomic headwinds in approaching quarters.
Featured Image: Megapixl © Selagin
