Electronic Arts Has Got Game
The narrow-moat company posted a strong finish to fiscal 2018, driven largely by console gaming.
Electronic Arts (EA) ended fiscal 2018 with a better-than-expected fourth quarter, as revenue and EBITDA beat consensus expectations despite the worries about competition from Fortnite. Management provided in line revenue guidance for fiscal 2019 but slightly weaker-than-expected bottom line guidance. EA also announced a $2.4 billion share repurchase authorization. We are maintaining our narrow moat rating and our fair value estimate of $103. With the shares trading in 2-star territory, we would seek a wider margin of safety before investing in this high uncertainty name.
Net revenue of $1,582 million (up 4% year over year) was slightly ahead of guidance of $1,532 million. Total revenue from consoles grew 8% to $1,196 million, as the strong growth for the current consoles (up 12%) was partially offset by the ongoing decline for older consoles (down 60%). While management touted the large number of Sims players and importance of PC gaming, EA’s revenue continues to be driven by the console business which generated 71% of revenue in fiscal 2018 versus 70% in fiscal 2017 and 67% in fiscal 2016. Mobile remains an important segment for EA, with revenue up 5% year over year, as the growth at Star War Galaxy of Heroes and FIFA Mobile more than offset the decline in older titles. Digital sales continue to drive overall growth as the category increased to 67% of sales on a trailing 12-month basis versus 59% a year ago. Despite removing microtransactions from Battlefront II, live services revenue was up 31% on a trailing 12-month basis versus the fourth quarter of fiscal 2017 as Ultimate Team modes in both FIFA and Madden continue to grow in popularity.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.