What's In Store For Electronic Arts This Earnings Season? Analyst Sees Growth In Live Services With Favorable Gross Margin

Stifel analyst Drew E. Crum reiterated a Buy rating on Electronic Arts Inc EA, raising the price target to $155 from $152.

Electronic Arts kicks off the fourth quarter earnings cycle for the video game stocks, and is scheduled to report its third quarter on January 30th.

The analyst’s estimates include non-GAAP EPS of $2.83 (vs. $2.80 last year) on net bookings of $2.332 billion (-0% y/y), slightly below the Street but near the mid-point of management’s guidance range across all key metrics. 

The analyst projects growth for Live Services ex- mobile (+3%; 59% of total net bookings) against lower results for mobile (-5%) and full game sales (-5%), while favorable mix on the gross margin line (+200 bps to 78.9%) is offset by higher opex (+7%), thus limiting upside to profitability. At the franchise level, gainers in the analyst’s game model include Madden, The Sims, and UFC, while EA Sports FC and Apex Legends are laggards. 

The analyst is not anticipating any material changes to FY2024 guidance with this update, but sees more latitude for adjustments with non-GAAP EPS at $6.60-$7.20, and less with net bookings for $7.300 billion-$7.700 billion. 

Additionally, the analyst expects the company to provide an outlook for FY4Q24, where the net bookings estimate ($1.769 billion) is about -$70 million below the Street. 

The analyst’s Buy rating is based on expectations for stable performance for the company’s Live Services, a decent development pipeline over the intermediate-term, a stable cash flow profile, and reasonable valuations.

Price Action: EA shares are trading higher by 0.81% to $137.72 on the last check Thursday. 

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