Mixed Results Drive Volatility In Electronic Arts
Electronic Arts (NASDAQ: EA) delivered a bit of a mixed report for the FQ4/CQ1 period but the net results are very positive. The news had shares down immediately following the release but bargain hunters were more than willing to scoop up some shares. Now, the morning after, share prices are surging on the expectation of what will soon come. What will soon come is an acceleration of business that will drive revenue, cash flow, earnings, share buybacks, and dividends.
“Our teams have done incredible work over the last year to deliver amazing experiences during a very challenging time for everyone around the world,” said Andrew Wilson, CEO of Electronic Arts. “With tremendous engagement across our portfolio, we delivered a record year for Electronic Arts. We’re now accelerating in FY22, powered by the expansion of our blockbuster franchises to more platforms and geographies, a deep pipeline of new content, and recent acquisitions that will be catalysts for further growth.”
Electronic Arts Revenue Falls, Bookings Rise
Electronic Arts had a good quarter but one plagued by rising costs that cut into the bottom line. The company reported $1.346 in net revenue which is down slightly from last year but much better than expected. The gains were driven by a robust 18.3% increase in net bookings that promises to drive revenue growth in the coming quarters as well. Net Bookings beat its consensus target by 720 basis points on strength in Live Services and Apex Legends revealing underlying strength in the gaming market and not just with EA.
Regarding the games, the company released 13 new games over the last year and acquired 42 million new players to its network. Notable game franchises include FIFA soccer with over 25 million active players, The Sims 4 with about 36 million players, and Apex Legends with over 100 million active players. Madden Football achieved record new player growth which is quite a feat for such a well-entrenched brand.
The bottom line is where the report gets a little sticky. While cash flow and FCF are still in good shape income is down from last year and weaker than expected. The silver lining is the $0.09 miss on earnings is due in part to aggressive share buybacks but rising costs are also to blame. The takeaway is that this company is a free-cash-flow generating machine and guiding the coming year above the consensus estimates. Electronic Arts execs are expecting full year revenue near $6.8 billion compared to the $6.06 consensus with net bookings accelerating to 18.5% YOY from F21's +15%.
Electronic Arts Is Returning Cash To Shareholders
Electronic Arts is returning cash to shareholders in the form of buybacks and dividends. The company initiated a $0.17 per share dividend a few quarters ago and looks well-prepared to keep paying it and possibly increase it as well. The payout ratio is a low 6% of 2022 earnings and that is before factoring in the guidance upgrade. The company is guiding the next year well above the current consensus making the current payout safer and the outlook for increases more positive. As for buybacks, the company repurchased 2.4 million shares over the quarter for $325 million and is expected to continue buying them back at a comparable rate in future quarters.
The Technical Outlook: Electronic Arts On Track For New Highs
The Q4 release spurred volatility in the price action but it looks like the bulls are winning. The premarket action has the share price up above the short-term moving average where it looks ready to continue higher. The move not only confirms the EMA as support but is also confirmed by a bullish signal in the stochastic that may in turn be confirmed by MACD. If price action can keep moving up we expect to see a fairly quick move up to the $148 level before the market tries to set a new all-time high above $150. If that can be achieved this stock will probably move higher into the end of the calendar year.
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