12/3/2023
EA is a company in the digital interactive entertainment industry. EA creates, promotes, makes and provides games, content and services that can be enjoyed. These games can be enjoyed on consoles, PC’s, phones, and tablets. EA has a huge and somewhat diverse portfolio of games. It ranges from first person shooters to sports games. Some of the games they own are Apex Legends, Battlefield, and The Sims. Some licenses they own include Madden NFL, Star wars, and 300+ licenses within their global football ecosystem.
EA’s most popular live services are the extra content purchased for the Ultimate Team mode associated with their sports franchises and extra content purchased from their Apex Legends franchise. This evidence shows us that EA’s FIFA Ultimate Team and Apex Legends are huge factors that affect how much revenue they will make. Meaning that if FIFA Ultimate Team does well and Apex does well the company will most likely do well. There are some exceptions like Madden, NBA 2k, and similar other games and licenses they own, which also contributes a decent amount of revenue. But their soccer games and Apex are their main sources of revenue.
EA’s business is vulnerable to many risks and uncertainties. This may or may not affect their future financial performances. One Risk EA has is that their financial performance is affected by how entertaining their products and services are. For example if EA does not make the new Apex Legends season entertaining users will stop playing. Therefore they will make less money off of in-game items, because there aren’t enough people buying them. This would result in lower revenue that Apex Legends generates, which may or may not affect EA’s revenue negatively. Another risk is that customers may prefer their competitors' products over theirs. If this is the case then the user playing their games will drop resulting in a drop in revenue . This shows that sometimes their earnings may be bad if their products are not good and if their competition is doing very well and is taking away customers. Also, if they miss key selling periods for products their sales will suffer significantly. Hence, their earnings won't be great causing the stock to drop.
Strengths:
EA has a broad and diverse collection of games, which they either own or have licenses for. These include many popular games like Apex Legends and EAFC 2024 which contribute heavily to revenue stability. They also have been very successful in the live services industry, especially in FIFA Ultimate team from the past years and Apex Legends. This proves that they have a very strong and dedicated user base.
Weaknesses:
The heavy reliance on their soccer games and Apex Legends for their revenue is one weakness. They also rely heavily on many of their live services products for revenue. This makes their revenue reflective of user sentiment and even if one of these titles do badly it could affect their revenue very negatively. Another weakness is the risk of product quality. If EA fails to consistently produce high-quality and entertaining products/games it could lead to a decline in user engagement and negatively impact the user sentiment of the company or some of the games. This will most likely affect revenue negatively.
Opportunity:
One opportunity that EA has is leveraging their 300+ licenses in their global soccer ecosystem which they could expand into other markets. EA could even embrace many different technologies like Virtual Reality, especially if they do a soccer VR game using their soccer licenses. In my opinion, I think it would do very well.
Threats:
One threat to the company is negative user sentiment. Also the competition they face from various different games is a very big threat. Another threat is the fact that if and when they miss key selling periods it will negatively affect their revenue. Lastly is market saturation. The gaming industry has a lot of competition and can sometimes get oversaturated with similar games. This might sometimes make EA hard to stand out from other gaming companies.
In November 2023, which was the end of Q2 EA’s net bookings was 1.820 billion(USD). This was 4% up from the previous year. Live services and other net bookings were 1.129 billion(USD) which was 1% up from the previous year. EA sports Madden NFL outperformed Q2 expectations by 6% from the previous year. EA sports global football outperformed Q2 expectations because of the strength of EA Sports FIFA 23 and high demand for the release of EA Sports FC 24. Then EA Sports FC24 had over 14.5 million active accounts in the first few weeks. The net revenue was 1.914 billion dollars and the profit was 1.458 billion dollars.
Net revenue from live services and other sources amounted to $1,293 million, reflecting a 1 percent decline compared to the previous year.
The gross margin reached 76.2 percent, indicating a 1 percentage point increase year-over-year.
Operating expenses rose to $1,081 million, marking a 7 percent increase compared to the same period last year.
Operating income totaled $377 million, representing a 12 percent decrease year-over-year.
Net income stood at $399 million, accompanied by diluted earnings per share of $1.47.
Operating activities generated a net cash inflow of $112 million, experiencing a substantial 200 percent growth year-over-year.
The combined sum of cash, cash equivalents, and short-term investments amounted to $2,305 million.
A total of 2.6 million shares of common stock were repurchased by EA for 325 million dollars.
Based on how much EA relies on their soccer games and Apex Legends for their revenue I think that they won't beat earnings in quarter 3. This is because the overall sentiment and user happiness for EA FC 24 is pretty bad. According to google reviews of EAFC 24 it is rated a 1.3 out of 5. A youtuber who goes by NickRTFM said that EAFC24 was dieing and that player numbers keep decreasing on the game. NickRTFM has 755 thousand subscribers and gets a lot of views on his videos. In my opinion because of all the negativity going around about EAFC24 I think it will do pretty bad. Also in this new game there has been a lot of glitches and bugs that can either have a positive affect on a player or a negative affect. Apex is still going really strong but games like the new Fortnite season and the new Call of Duty season might take away users from Apex. This means that they will have a lot of competition which could take away users hurting their revenue. The average estimate for their revenue according to Yahoo Finance is 2.35B dollars. Because of the overall sentiment of EAFC 24, I think that they won't be able to produce/hit this number this upcoming quarter.
Based on everything I have written about, I hope you have learned a little bit about EA the company and about what they do. I also hope that this has helped you understand and maybe form a conclusion of how EA’s stock will do when they release their next earnings.