The video game giant had $0.39 in earnings per share (EPS) on $896 million in revenue, compared to Thomson Reuters consensus estimates of $0.25 in EPS on $850.23 million in revenue. In the fiscal fourth quarter of last year, EA posted EPS of $0.48 and revenue of $914.00 million.
The company gave guidance for the fiscal first quarter and the 2016 fiscal year. The first quarter is expected to have $0.00 in EPS on $640 million in revenue, compared to consensus estimates of $0.19 in EPS on $774.59 million in revenue. In terms of the full fiscal year, EA expects EPS of $2.75 on $4.4 billion in revenue, versus the consensus estimates of $2.64 in EPS on $4.48 billion in revenue.
Credit Suisse made its investment case for its Outperform rating and $75 price target as:
While the initial fiscal year 2016 EPS guidance of $2.75 versus consensus $2.63 will dominate the narrative on EA shares today, the key takeaways for us were the continued signposts along the company’s digital transition: 1) downloads for some of the games on the new consoles have now reached 20%, 2) FIFA Online 3 already contributing ~$10 million per quarter in China, 3) 53% growth in Ultimate Team business. Battlefield, Need for Speed, and other major franchises still await a full free-to-play transition and global expansion. We believe both fiscal first quarter of 2016 and 2016 fiscal year guidance are conservative – especially given that this contemplates 9 million to 10 million units of Battlefront. We maintain our Outperform rating as we focus on the following factors: 1) further positive mix shift to digital, as well as 2) the expansion of EA’s addressable market to target the global online user base to start exerting a greater influence on margin expansion.
Credit Suisse adjusted its 2016 fiscal year estimates to match the guidance given by EA from the firm’s previous estimates of $2.35 in EPS to $4.24 billion in revenue.
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Merrill Lynch maintained a Neutral rating but raised its price objective to $66. The brokerage firm saw the fiscal fourth-quarter financial results as strong, as well as the outlook. However the firm was quick to point out a couple negatives in the report: digital growth slowed to 9% from 34%, Ultimate Team lost some players, and digital comps get tougher in the 2016 fiscal year.
As a result of EA’s updated guidance, Merrill Lynch lowered its revenue estimate to $4.47 billion from $4.60 billion, but raised EPS estimates to $2.86 from $2.78 for taxes. What the firm calls “upside risks” or growth opportunities are:
- Star Wars sells closer to BF units at 15 million.
- FIFA in China accelerates.
- Anticipated FX pressure does not materialize.
Downside risks are:
- Ultimate Team faces tougher comps in the 2016 fiscal year.
- Star Wars execution.
- Mobile growth does not reaccelerate year over year.
Sterne Agee CRT’s Arvind Bhatia and Brett Strauser were on the call for EA. The firm has a Buy rating for the stock and raised its price target to $70 from $65.
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More importantly, considering the consistent upside surprises throughout this past year, a total of $0.66 or 35% EPS upside compared to initial guidance, investors will assume the 2016 fiscal year guidance to be conservative. With potential catalysts such as E3 in June, Star Wars Battlefront in November and a new/more aggressive $1 billion stock buyback, the stock is poised to continue to perform well.
As a result, Sterne Agee CRT raised its 2016 fiscal year revenue and EPS estimates to $4.49 billion and $2.84, from $4.28 billion and $2.65, respectively. The firm also raised its 2017 fiscal year revenue and EPS estimates to $4.7 billion and $3.21 from $4.5 billion and $3.03, respectively.
The firm commented on the impact of foreign exchange rates (FX):
Guidance includes $0.21 negative FX impact, offset partially by $0.11 benefit from a lower tax rate. The lower tax rate (22% versus 25% historically) is expected to be the new long-term rate and is a reflection of increased mix of earnings in lower-tax jurisdictions overseas. Management is modeling StarWars Battlefront to generate 9 million to 10 million units for the year. While investors may be skeptical of this guidance, we note this management team has earned a strong reputation of under-promising and over-delivering over the last 2 years. Digital revenue is expected to grow 14%, offset by packaged software (-11%). FX impact on revenue is expected to be $250 million or ~6%.
Late Wednesday morning, shares of EA were up 4.2% at $61.64, in a 52-week trading range of $31.77 to $63.25. The stock has a consensus analyst price target of $59.60. The all-time high for EA was set in 2007 at $69.84, and this is the closest that the stock has been since then.
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