Electronic Arts Inc. (Nasdaq: EA) reported earnings from its third fiscal quarter after the bell on Tuesday, and although both earnings and revenue numbers came in below estimates, an improved fourth-quarter outlook gave shares a big lift. EA stock rose as much as 6 percent in after-hours trading.
Shares of the video game developer have been shooting up over the past year, rising 40 percent in that time. The Standard & Poor’s 500 index, by contrast, has risen 24 percent in the last year. And by all initial indications, it looks like that outperformance won’t be stopping soon.
Here’s a quick look at EA’s quarter by the numbers.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
EA earnings highlights. Electronic Arts’ fiscal year runs through the end of March, which means the third-quarter of its 2018 fiscal year closed at the end of December.
GAAP earnings per share were actually nonexistent; EA posted a GAAP loss of 60 cents a share in the period, down from the breakeven 0 cents per share a year ago. Analysts were expecting a loss of 23 cents per share.
Revenue fell 4.8 percent percent to $1.97 billion, slightly lower than the $2.01 billion Wall Street consensus estimate. These two metrics by themselves wouldn’t have boded well for shares.
Thankfully for EA stock investors, the Redwood City, California-based game-maker guided for an absolutely monster fourth-quarter: $1.53 billion in net revenue for Q4 2018, well above the $1.18 billion the Street had been forecasting. On top of that, it guided for EPS of $1.86, blowing the $1.08 per share analysts had been forecasting for Q4 out of the water.
Investors are often more interested in what the company expects to do in the future than the most recent quarter, since a company is only worth what its future earnings will bring you. That said, if you own Electronic Arts stock, it’s important to keep up with the recent past as well.
Additional operating highlights. The essential takeaway from the Q3 EA earnings release? Other than the future is bright, customers are in love with the company’s products. Digital net bookings, a key internal operating metric, rose 18 percent year-over-year, and its sports and Star Wars-themed games took off.
EA has also been reducing share count, buying back 1.4 million shares of stock for $150 million in Q3. In the past twelve months, EA has spent $578 million buying back stock. With corporate taxes coming down as well, shares should have some nice tailwinds (aside from the business itself) in the year ahead.
While its revenue and earnings may not seem too impressive on an absolute basis, when you zoom out and look at a broader picture, you can see why EA stock remains best-in-class.
Going forward. Electronic Arts’ portfolio of games is unrivaled, and the company is very well-positioned to benefit from secular growth trends like the industry’s transformation to digital and mobile games, as well as the growing field of esports.
Current EA titles include “Madden NFL 18,” “FIFA 18,” “NBA Live 18,” “NHL 18,” “Star Wars Battlefront II, Battlefield,” “Mass Effect” and The Sims and Need for Speed franchises.
Many of these franchises are insulated from competition due to exclusive multi-year licensing deals with sports leagues, and in the case of the popular Star Wars games, Walt Disney Co. ( DIS).
[See: 7 of the Best Stocks to Buy for 2018.]
Long-term EA shareholders have been amply rewarded, and after a great Q3 report, the stock remains a solid bet going forward.
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Electronic Arts Inc. (EA) Stock Soars on Rosy Outlook originally appeared on usnews.com
