This metric takes electronic arts to new heights
Ininvestors had modest expectations going into electronic arts‘ (NASDAQ:EA) fourth fiscal quarter announcement. The report covers the sales period until the end of March, when many digital entertainment giants, including netflix and ActivisionBlizzardsuffered a slowdown in growth compared to previous phases of the pandemic.
EA is not in the same situation.
The video game developer said this week that user engagement has held steady through early 2022 and growth is expected to continue in fiscal 2023. Let’s take a closer look at why EA is winning the game in this moment.
Net bookings growth, EA’s primary growth indicator, remained high at 18% in the fourth quarter, compared to 21% for the year as a whole. This steady increase has helped separate the company from peers like Activision, which saw a sharp decline over the past quarter, and Netflix, which is seeing declining engagement.
EA got help from a flood of popular content releases in franchises such as Apex Legends, EA Sportsand The Sims. Most of this engagement has also taken the form of subscription engagement, which has allowed players to stay longer in its ecosystem. “2022 has been a banner year, with hundreds of millions of gamers…joining our games to play, watch and create with each other,” CEO Andrew Wilson said in a press release.
The news was equally good regarding EA’s finances. Profitability continues to increase as more game sales occur directly between EA and its customers. Microtransactions and Season Passes also increase free cash flow, which is around $2 billion a year.
These wins translated into strong earnings trends. Pretax profit has risen solidly over the past 12 months, even compared to the surge in results a year earlier. Net income reached $789 million, or $2.78 per share this fiscal year, compared to $837 million, or $2.90 per share in the prior year. The decline was entirely attributable to higher taxes and a slight increase in interest payments. “We grew both net bookings and underlying profit by more than 20% for the full year,” Chief Financial Officer Chris Suh said in prepared remarks to investors.
A bright perspective
Investors were probably just as happy to hear EA’s bright outlook for the new fiscal year ahead. The company is planning several big launches, including new FIFA and Madden NFL football games and a few as yet undisclosed titles in the fourth quarter of the fiscal year.
These releases are expected to help fuel another year of growth, with net bookings likely to top $8 billion for the year, up from $7.5 billion last year and $6.2 billion for the fiscal year. 2020. Net income is also expected to top $800 million, down from $789 million.
EA’s longer-term prospects look even better as margins increase and engagement shifts to emerging areas like augmented reality, virtual reality, and the metaverse. As a leader in the video game industryEA should reap more than its fair share of the benefits of this change.
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Demitri Kalogeropoulos has positions in Activision Blizzard and Netflix. The Motley Fool holds positions and recommends Activision Blizzard and Netflix. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.