Shares of Electronic Arts (NASDAQ: EA) broke out on Wednesday, fully reversing a month-long slump after the video game publisher reported mixed quarterly financials that still managed to turn analysts bullish.
Q1 Earnings Summary
- Earnings: $0.02 per share
- Revenue: $743 million
For its first first quarter, Electronic Arts posted a slight loss of $0.02 per share that was slightly higher than expected. Revenues surprised to the upside, coming in at $743 million compared with $719 million expected. Revenues are still down 6.9% compared to a year ago.
The company reported a 12% increase in net bookings for its live services, which includes the pivotal Apex Legends game.
According to Zacks, Electronic Arts has surpassed earnings estimates in three of the last four quarters.
Competition has been eating away at EA’s bottom line in recent quarters. Blake Jorgensen, the company’s CFO, told investors last quarter that the “last 12 months have been a time of change for the video game industry.” Competitive pressures saw titles like Battlefield V and Command & Conquer post disappointing sales.
EA Stock Outperforms
Electronic Arts was among the best-performing stocks Wednesday. EA rose by as much as 6.2% and peaked at $96.54. It closed at $92.50, having gained 4.4%. The stock was little changed in after-hours trading.
Source: Yahoo Finance
By comparison, the S&P 500, Nasdaq and Dow Jones Industrial Average each plunged more than 1% on Wednesday, with all of the declines concentrated in the last two hours of trading. The market soured after the Federal Reserve lowered interest rates for the first time in more than a decade, but perhaps by a smaller amount than many had wanted. Two of ten Fed officials also voted against the rate cut, signaling dissension within the ranks.
Barron’s credits the Legends game for EA’s monstrous stock rally on Wednesday. EA stock had been down 14% since July 2 after the company introduced season 2 of the free-to-play battle royale game. As it turns out, Legends wasn’t a total flop after all.
At current values, Electronic Arts has a total market capitalization of $27.4 billion. The stock has underperformed the market this year and is down 30% from the 52-week high.
Conclusion
Despite growing competition in the video game publishing industry, EA’s management is confident that Apex Legends is a force to be reckoned with. The game is the fastest growing title EA has ever had, having quickly exceeded 50 million players. Among those, 30% are new to EA. Investors should keep tabs of EA’s live services business, as this will clearly be the key to future growth.
Disclaimer: Author holds no investment position in Electronic Arts at the time of writing.
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