EA’s earnings send the Street into overdrive
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EA’s earnings send the Street into overdrive

Most of the recent headlines concerning world-leading games developer and publisher Electronic Arts (EA) have focused on the fan outcry at the inclusion of “micro-transactions” in its latest Star Wars game. As a result, the company froze the offending service, and investors expected to see muted results in its latest earnings report. However, this should be a good lesson in learning to tune out media noise: EA outperformed analysts’ expectations for a revenue of $1.18 billion, and delivered $1.23 billion instead.

In the first month of 2018, EA’s share price is already nearly 20% up!

graph 0502 EA

SOURCE: Yahoo Finance

Wedbush Securities analyst Michael Pachter said: “Many thought guidance would be lowered, and guidance was raised. That means nothing is wrong, and people were overly focused on ‘Star Wars’.” It is particularly noteworthy that this higher guidance comes not just in spite of lower-than-hoped-for sales of Star Wars Battlefront 2, but also the suspension of micro-transactions within it. Clearly, the company has plenty of other things to get excited about.

One of those things is the upcoming UFC 3 – a video game that simulates “Mixed Martial Arts” – a sporting competition based around pitting professional fighters from a variety of styles in a cages and letting them duke it out, one-on-one. The sport has become wildly popular over the past two and a half decades, and Ultimate Fighting Championship (UFC) is the league that popularised it. Hence, EA’s UFC titles are an important franchise. By September last year, the first game in the series had sold 1.5 million copies, and the second, 1.3 million.

Discussing the aforementioned Star Wars title, chief financial officer Blake Jorgensen told reporters: “We sold fewer units than we thought in the quarter. We thought we would sell roughly eight million units, we sold just a little under one million units less than that. We will continue to sell ‘Star Wars’ just at a slower pace than we originally thought.

Another feather in EA’s cap in the last quarter was rising digital sales. The company’s digital downloading of video games effectively cuts out the middleman, letting it keep more profit. In the last quarter, digital sales were up by 14%.

Disclosure

Dominion holds Electronic Arts in its Global Trends Ecommerce Fund.


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