Insights

This Metric Is Lifting Electronic Arts to New Highs

Investors had modest expectations heading into Electronic Arts’ (NASDAQ: EA) fiscal fourth quarter announcement. The report covers the selling period through late March, which is a time that many digital entertainment giants, including Netflix and Activision Blizzard, suffered a growth slowdown compared with earlier phases of the pandemic.
EA isn’t in the same predicament.
The video game developer said this week that user engagement held up through early 2022, and growth is likely to continue in fiscal 2023. Let’s take a closer look at why EA is winning the game right now.
Image source: Getty Images.

Sales trends
Net bookings growth, EA’s core growth metric, stayed elevated at 18% in Q4, compared with 21% for the full year. That steady boost helped separate the company from peers like Activision, which posted a sharp decline in the most recent quarter, and Netflix, which is seeing declining engagement.
EA got help from a flood of popular content releases across franchises like Apex Legends, EA Sports, and The Sims. Most of this engagement came in the form of subscription-based engagement, too, which kept gamers in its ecosystem for longer. “2022 was a record year, with hundreds of millions of players … joining in our games to play, watch, and create with one another,” CEO Andrew Wilson said in a press release.
Improving finances
The news was just as good around EA’s finances. Profitability continues to rise as more game sales occur directly between EA and its customers. Microtransactions and seasonal subscriptions are lifting free cash flow, too, which is running at about $2 billion a year.
These wins translated into solid profit trends. Pre-tax earnings were up solidly over the past 12 months even compared with soaring results a year earlier. Net earnings landed at $789 million, or $2.78 per share this fiscal year, compared with $837 million, or $2.90 per share in the prior fiscal   year. The decline was entirely driven by higher taxes and a slight increase in interest payments. “We grew both net bookings and underlying profit by over 20% for the full year,” CFO Chris Suh said in prepared remarks to investors.
A bright outlook
Investors were likely just as happy to hear EA’s bright outlook for the new fiscal year ahead. The company is planning several big launches, including new FIFA soccer and Madden NFL games and a few as yet undisclosed titles in fiscal Q4.
These releases should help power another year of growth, with net bookings likely to cross $8 billion for the year, compared with $7.5 billion last year and $6.2 billion in fiscal 2020. Net income should cross $800 million, too, up from $789 million.
EA’s longer-term outlook seems even better as margins rise and engagement moves into emerging areas like augmented reality, virtual reality, and the metaverse. As a leader in the video game industry, EA stands to reap more than its fair share of the profits from that shift.
Demitri Kalogeropoulos has positions in Activision Blizzard and Netflix. The Motley Fool has positions in and recommends Activision Blizzard and Netflix. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy. –

Investors had modest expectations heading into Electronic Arts(NASDAQ: EA) fiscal fourth quarter announcement. The report covers the selling period through late March, which is a time that many digital entertainment giants, including Netflix and Activision Blizzard, suffered a growth slowdown compared with earlier phases of the pandemic.

EA isn’t in the same predicament.

The video game developer said this week that user engagement held up through early 2022, and growth is likely to continue in fiscal 2023. Let’s take a closer look at why EA is winning the game right now.

Image source: Getty Images.

Sales trends

Net bookings growth, EA’s core growth metric, stayed elevated at 18% in Q4, compared with 21% for the full year. That steady boost helped separate the company from peers like Activision, which posted a sharp decline in the most recent quarter, and Netflix, which is seeing declining engagement.

EA got help from a flood of popular content releases across franchises like Apex Legends, EA Sports, and The Sims. Most of this engagement came in the form of subscription-based engagement, too, which kept gamers in its ecosystem for longer. “2022 was a record year, with hundreds of millions of players … joining in our games to play, watch, and create with one another,” CEO Andrew Wilson said in a press release.

Improving finances

The news was just as good around EA’s finances. Profitability continues to rise as more game sales occur directly between EA and its customers. Microtransactions and seasonal subscriptions are lifting free cash flow, too, which is running at about $2 billion a year.

These wins translated into solid profit trends. Pre-tax earnings were up solidly over the past 12 months even compared with soaring results a year earlier. Net earnings landed at $789 million, or $2.78 per share this fiscal year, compared with $837 million, or $2.90 per share in the prior fiscal   year. The decline was entirely driven by higher taxes and a slight increase in interest payments. “We grew both net bookings and underlying profit by over 20% for the full year,” CFO Chris Suh said in prepared remarks to investors.

A bright outlook

Investors were likely just as happy to hear EA’s bright outlook for the new fiscal year ahead. The company is planning several big launches, including new FIFA soccer and Madden NFL games and a few as yet undisclosed titles in fiscal Q4.

These releases should help power another year of growth, with net bookings likely to cross $8 billion for the year, compared with $7.5 billion last year and $6.2 billion in fiscal 2020. Net income should cross $800 million, too, up from $789 million.

EA’s longer-term outlook seems even better as margins rise and engagement moves into emerging areas like augmented reality, virtual reality, and the metaverse. As a leader in the video game industry, EA stands to reap more than its fair share of the profits from that shift.

Demitri Kalogeropoulos has positions in Activision Blizzard and Netflix. The Motley Fool has positions in and recommends Activision Blizzard and Netflix. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

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