EA Earnings: Solid Start for FC 24 Bodes Well for Global Football Franchise

Narrow-moat Electronic Arts EA posted solid fiscal 2024 second-quarter results as its core sports franchises performed very well. While it didn’t have a big direct impact on the quarter, the launch of EA Sports FC 24, the rebranded version of FIFA, at the end of September has gone smoothly thus far. Management continues to expect global football revenue will increase at a low-single-digit rate versus FIFA 23 despite lapping last year’s World Cup. We are leaving our $150 fair value estimate unchanged and believe the shares are undervalued.

Net bookings of $1.8 billion during the quarter were up 5% versus a year ago excluding currency movements. The Madden NFL franchise delivered 6% booking growth, building on the double-digit increase reported a year ago. FIFA 23 also delivered strong engagement leading up to the FC 24 launch, with bookings up 41%. Apex Legends delivered improved results during Season 18 following a disappointing Season 17 last quarter, but bookings for the franchise were still down versus a year ago.

Adjusted operating margin declined to 26% from 28% last year on higher marketing expense, largely to support the transition to FC 24, and higher research and development costs. Management maintained its fiscal 2024 forecast for net bookings of $7.3 billion-$7.7 billion versus $7.3 billion in fiscal 2023. EA increased its operating cash flow expectations based primarily on one-time tax benefits and higher interest income while also reducing its capital spending budget for the year to $250 million from $275 million as it evaluates its real estate needs. As a result, it expects free cash flow to total $1.7 billion-$1.85 billion versus $1.4 billion-$1.6 billion previously.