EA Q3 2014 Investor Report: Still Rich, Still Tight-Lipped
Electronic Arts management avoided any mention of the still-pending investor lawsuits during today’s investor call for the third fiscal quarter of 2013.
Participants in the post-presentation question and answer session did likewise, leaving the company’s thoughts on the risks and expenses of said lawsuits a total mystery. But if EA has anything to fear from being sued over the numerous problems at launch with Battlefield 4, you wouldn’t know it from today’s call.
Instead, though earnings were slightly below previously set goals, EA management is bullish about the final quarter of fiscal year 2013, and about its fortunes in the first months of the eighth console generation.
For those paying attention to the Battlefield 4 debacle, EA insists that it hasn’t impacted sales. While there has been significant “softness” in Battlefield 4 revenues, EA blames the console generational transition.
“We obviously saw some decline in current-gen software that wasn’t picked up by the increased anticipation that gamers had and the sales thereof of next-gen,” EA President Peter Moore said during the call. “Battlefield 4 was no different than FIFA or Need for Speed in this issue, but this was focused on current-gen rather than, we believe, any issues with the game itself. This game has got a long tail, as you well know, and we will continue to be able to sell this effectively throughout the next fiscal year.”
Whether this explanation tells the whole story, it is absolutely true that EA is thriving despite the Battlefield 4 setback. Total quarterly earnings were GAAP $808 million and non GAAP1 $1.572 billion. Further, no shares were repurchased during the quarter. As noted above, lower-than-expected sales of EA games for PS3 and Xbox 360 meant that earnings were below projections, and GAAP earnings for the quarter were $114 million lower than Q2 2013. (Non GAAP earnings were approximately $300 million higher than this time last year.) The company is also well positioned to endure such setbacks for some time to come – despite the apparent drop in revenues, EA’s cash on-hand at the end of Q3 is $685 million, its highest trailing operating cash since 2005.
EA can also brag about having produced the second- and third-best selling games during the month of December — Battlefield 4 and FIFA 14 — as well as having secured 35 percent of Playstation 4 and Xbox One software sales for the whole quarter. Digital revenues during the quarter were up 27 percent at $517 million, bringing the fiscal quarter total earnings to an impressive $1.86 billion.
In the fourth quarter, EA says it expects to earn a total of $1.07 billion in GAAP net revenue, and $800 million non GAAP net revenue.
In short, whatever difficulties may or may not lie ahead, EA apparently has little reason to sweat. This has investors feeling somewhat confident, though it’s possible there may be some declines tomorrow: while the company’s closing share price today was $24.87, in after-hours trading, the shares took a slight dip to $24.30.
As for the hard numbers, such as they are, here are the highlights from a slightly less successful, but still cash flow-positive, third quarter:
- GAAP Digital Net Revenue: $410 million
- GAAP Publishing Packaged Goods and Other Net Revenue: $370 million
- GAAP Distribution Packaged Goods Net Revenue: $28 million
- Non-GAAP Digital Net Revenue: $517 millon
- Non-GAAP Publishing Packaged Goods and Other Net Revenue: $1,027 million
- Non-GAAP Distribution Packaged Goods Net Revenue: $28 million
NOTE by Ross: This post has been edited to correct an error related to repurchase of EA stock.
1) A note: GAAP is short for Generally Accepted Accounting Principles. These are a standard framework for accounting set in coordination with the SEC and numerous private organizations. Non-GAAP estimates are often provided along with GAAP estimates because the company feels they more accurately reflect the true state of the company’s finances.