Electronic Arts Stock Drops Even Though the Company Beat Sales Forecasts - Barron's

Electronic Arts stock was down Friday afternoon, even though its earnings report mostly beat expectations.

Adjusted revenue hit $1.98 billion, topping consensus estimates of $1.97 billion. EA’s outlook for the current quarter calls for $1.152 billion in adjusted revenue, a bit below the average analyst estimate.

The company (ticker: EA) also did not give an exact figure on the Apex Legends player base—something that was included in its prior earnings report. EA stock was down 3% to $108.38 on Friday, while the S&P 500 index was down 1.5%.

J.P. Morgan analyst Alexia Quadrani wrote in a note Friday that she thought investors had hoped for an even bigger beat. She still has a positive view of EA, given 27% growth for live services and an outlook for fiscal 2021 and 2022 she called “solid.”

She added that sales of EA’s “Star Wars” single-player game, Jedi: Fallen Order, beat the company’s expectations. EA raised its estimate for the game to 10 million units in fiscal 2020, up from a range of six million and eight million units.

Cowen analyst Doug Creutz called the fiscal 2020 outlook conservative. He raised his revenue and earnings per share estimates above management’s outlook.

“We view EA shares, at current levels, as a good way to have exposure to what has historically been a very positive environment for video game stocks ahead of a new console launch,” he wrote. “We believe upside to current FY20 guidance is likely, particularly given strong readings for Star Wars Jedi: Fallen Order in our Ordometer. While we still have longer term concerns about execution and growth potential, in our opinion those are accounted for at the current valuation.”

Benchmark analyst Mike Hickey also called the outlook conservative, adding he would be an opportunistic buyer on potential weakness.

“We have identified a compelling growth path through FY23 and suspect improving investor sentiment, relative valuation, existing Live Service portfolio, robust game pipeline, console releases and balance sheet will drive positive valuation consideration,” he wrote. “EA’s share price increased 58% in CY13, when Gen-8 consoles (PS4 / XB1) launched.”

Bernstein analyst Todd Juenger likened EA’s cautious approach to former football player Woody Hayes advancing the ball down the field.

“We like EA’s ball control offense, as opposed to one that relies on high risk/high reward big plays (per Hayes, ‘three things can happen when you throw a forward pass, and two of them are bad’),” Juenger wrote.

He raised his price target to $123 from $119, noting revenue and earnings were ahead of the company’s outlook, matching consensus. He called the live services beat most important. Though game sales overall were “a tad light” that wasn’t the case for the sports and Star Wars segment.

“Non-sports, EA finally has a studio delivering consistent excellence,” he said, referring to EA’s Respawn Entertainment development studio that developed Jedi: Fallen Order. “The bull/bear debate will rage between whether Respawn can continue, and even spread improve execution across an increasing range of EA’s portfolio… or whether EA will drag Respawn down.”

Write to Connor Smith at connor.smith@barrons.com

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