EA Earnings!

good day to be a sim

Commentary

Not only did EA perform as well as I expected pre-earnings call, but I believe the market is still undervaluing it.

At CBS, Ali Kay, seasoned investor at KIDS capital (stands for keep it disciplined and simple), explained a key investment criteria to identify mispricings is obfuscation. This is when a part of the business is obscured by other business segments, and if it were to spin-off in it’s own right, it has untapped value.

For EA, a key group of undervalued assets is Covet Fashion and Design Home, the apps brought in from the Glu mobile acquisition. EA has scaled down the team as they focus resources on the Sports-focused mobile assets, managing the expiration of the FIFA license to ensure no value is lost there. And, even with nearly no marketing and SG&A spend, these lifestyle mobile apps are still top mobile performers.

Covet and Design Home are well-positioned to capture the middle-age women mobile players. This is a large opportunity, as discussed in the Muus fantasy investment draft post. EA has all the technical infrastructure, monetization strategy, and marketing machine to win this market.

Secondly, as mentioned in the soundbite from my conversation with a FIFA power user, the addition of female players into the FIFA console is likely to surge the participation of women in the gaming ecosystem, and there are cross-over opportunities to promote female engagement from console to mobile lifestyle, and flywheel the engagement.

In addition to this untapped opportunity with the female market, their core performance was strong. See below for stats.

Lastly, I see they recently hired a new head of brand marketing to revive the Sims group, investing in a marketing push for the 25th anniversary. Channeling an investment into this part of their catalogue could ramp up revenue from this game.

“As we approach this storied franchise’s 25th anniversary in 2025, The Sims is looking for a Global Marketing leader who will be a single point of accountability for the brand and partner with the Franchise GM to deliver results.”

Highlights

FQ2 2024

• Reported FQ2 2024 Net Bookings of $1,820M, representing a 4% increase YoY, above prior outlook of $1,700M — $1,800M and above consensus of $1,767M
• Reported FQ2 2024 Live Services & Other Net Bookings of $1,129M, representing a 1% increase YoY
• Reported FQ2 2024 Full Game Net Bookings of $691M, representing a 9% increase YoY
• Reported FQ2 2024 Mobile Net Bookings of $279M, representing a (6%) decrease YoY

TTM

• Reported TTM Net Bookings of $7,686M, representing a 4% increase YoY
• Reported TTM Live Services & Other Net Bookings of $5,583M, representing a 3% increase YoY
• Reported TTM Full Game Net Bookings of $2,103M, representing a 7% increase YoY
• Reported TTM Mobile Net Bookings of $1,216M, representing a (3%) decrease YoY

Capital Allocation

• Net cash provided by operating activities was $112M for the quarter and $2,211M for TTM
• EA repurchased 2.6M shares for $325M during the quarter, bringing the total TTM to 10.5M shares for $1,300M
• EA has declared a quarterly cash dividend of $0.19 per share, which will be payable on December 20, 2023 to shareholders of record as of the close of business on November 29, 2023

Guidance

FQ3 2024

• Net Bookings of $2,250M — $2,450M vs. consensus of $2,370M
• GAAP EPS of $0.75 — $1.01 vs. consensus of $0.69

FY 2024

• Net Bookings of $7,300M — $7,700M vs. consensus of $7,568M
• GAAP EPS of $4.10 — $4.66 vs. consensus of $3.89

Business Updates

• The EA SPORTS Madden NFL franchise outperformed Q2 expectations, delivering Net Bookings growth of over 6% YoY
• The EA SPORTS global football franchise outperformed Q2 expectations, driven by the continued strength of EA SPORTS FIFA 23 and demand for the release of EA SPORTS FC 24
• EA SPORTS FC 24, within the first four weeks of global launch, had over 14.5M active accounts