Electronic Arts' Digital Penetration Should Drive Growth

Electronic Arts Inc. EA reported robust F4Q results, beating expectations, driven by its Digital business.

Baird’s Colin Sebastian reiterated an Outperform rating on the company, with a price target of $80.

F4Q Beat

“Following a noisy holiday print impacted by FX and physical-mix issues, EA reported an impressive top- and bottom-line beat, driven by digital outperformance, specifically mobile and FIFA Ultimate Team strength,” Sebastian mentioned.

Net revenue meaningfully beat the consensus and guidance, coming in at $924 million, driven by robust digital revenues, especially extra content and mobile.

This led to the gross margin also beating consensus, coming in at 76.9 percent, while operating expenses remained under control.

Electronic Arts reported its EPS at $0.50, well ahead of the consensus, driven primarily by continued cost discipline and lower share count, due to buybacks.

“Given EA's demonstrated ability to leverage content, for example around tangential live events, we believe significant opportunity exists for deepening engagement and incremental monetization,” Sebastian stated.

FY17 Guidance

The company guided to FY17 revenue of $4.9 billion and EPS of $3.50, essentially in-line with the consensus.

According to the Baird report, “In addition to the expected tailwinds from several AAA titles, we believe EA will continue to benefit from longer-tail digital monetization, which coupled with an easier Y/Y digital-mix comp in FY17, could produce upside to margins and EPS.”