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Stock Analyst Update

Electronic Arts Has Got Game

The narrow-moat company posted a strong finish to fiscal 2018, driven largely by console gaming.

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 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.

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Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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