Electronic Arts reported its best fiscal first-quarter on record—an impressive feat, given the publisher only launched two full games during the period.
With consumers staying home to slow the spread of Covid-19, EA’s quarterly earnings and revenue crushed expectations. Its outlook for the fiscal second quarter was a bit of a disappointment compared with consensus estimates, but Blake Jorgensen, the company’s chief financial officer and chief operating officer, noted the company pushed back the launch of FIFA 21 to the third quarter to give developers a bit more time amid the new work-from-home reality. The company raised its full-year outlook.
According to FactSet, about a dozen analysts raised their price targets following the earnings report. Despite all the price target raises, and the stock hitting a 52-week high around 9:40 a.m., EA shares (ticker: EA) were down 0.3% at 12:46 p.m. on Friday. Shares of peers Activision Blizzard (ATVI) and Take-Two Interactive Software (TTWO) both pared back some gains, but were still positive early Friday afternoon. The S&P 500 index was down 0.6%.
Analysts touted big-time growth for the live services category. Live services are digital offerings available after a game is purchased. One of FIFA 20 and Madden 20’s popular modes is Ultimate Team, which lets players purchase virtual trading card packs they can use to construct custom teams and compete online.
During EA’s earnings call, Jorgensen said its first-quarter Ultimate Team revenue grew 70% year-over-year, on a like-for-like basis. Jorgensen noted that sports fans used Ultimate Team as a kind of social network, playing and connecting with friends amid the pandemic. With live sports out of the picture the past few months, he said users doubled down on such services.
“While we always want live sports to go on because it helps feed the engagement and excitement around the business, we also know sports fans are not going to stop being sports fans if the underlying sports stops,” he said. “And I think the first quarter proves that better than anything we’ve ever seen.”
Jefferies analyst Alex Giaimo, who has a Hold rating on the stock, wrote in a note on Thursday that the report has made him more positive on EA stock. He raised his price target to $155 from $140.
“We would prefer a slight pullback before becoming more constructive, but acknowledge that execution has dramatically improved with increased stay-at-home activity acting as the catalyst EA needed,” he wrote.
Piper Sandler analyst Yung Kim raised his price target to $157 from $133 and maintained an Overweight rating. He noted the company entered the year having to manage its launch lineup around no Battlefield release, originally a disappointment for investors.
“But amid Covid, videogames at large and EA titles in particular have become top options for new and lapsed players,” he wrote. “Apex, Sims, FIFA and Madden Ultimate Teams, as well as FIFA Online each continue to outperform, buoying expectations for the next round of EA Sports titles (Madden, FIFA, NHL and UFC) as well as Star Wars: Squadrons.”
J.P. Morgan analyst Alexia Quadrani raised her price target on the stock to $150 from $127 and maintained an Overweight rating.
“We think these results are attributable as much to execution as they are to any tailwinds from shelter-in-place orders around the world, as EA reaps the benefit of heightened engagement after years of investing into live services content and improving the player experience,” she wrote in a note on Friday.
She pointed to comments from management that implied the company’s full-year guidance may be conservative, based on macroeconomic uncertainty.
“However, management did acknowledge reasons to be optimistic, noting the company has added tens of millions of players across its portfolio of games since the beginning of April, with FIFA alone attracting 7 [million] new players during the quarter,” she wrote.
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August 01, 2020 at 01:12AM
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Electronic Arts Posted a Record Quarter. Here's What Wall Street Is Saying. - Barron's
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