EA Quarterly Results Expectations ahead of November 1, 2023 Earnings Report
Q2:F24 booking estimate of $1.79B predicted; November 1, 2023 to be announced. Below is a breakdown of the optimistic picture is expected on the upcoming earnings call on November 1, 2023.
Superficial signals may depress the growth rates this quarter, and lead investors to undervalue the stock
- PC/Console Twitch Viewership up and down across titles (FIFA -13%, Madden +10%, Apex -34%). Though Apex is down, it still commands a large concurrent viewer audience of 47.5k, twice that of FIFA’s audience of 23.7k. Interestingly, despite Madden being a top played game on the Xbox store (#8 — #10 range), this audience does not translate to strong CCV, at ~2k (less than 10% of FIFA’s CCV).
2. Mobile revenue expected to bring in $278m for Q3 (-8% QoQ), representing a 2.15% share of U.S. iOS/Android IAP market, down slightly from 2.34% in Q2. Top contributor is Golf Clash, top drag is FIFA soccer. Interestingly, mid-tier winners within EA portfolio show the success of the Glu acquisition and unique hold on female market (Covet Fashion, Design Home, Sims Free Play). This is interesting because insiders suggest the EA board was hesitant about the acquisition at the time, fearing the titles and medium were a fad that had peaked.
3. Ambiguity regarding how the restructuring, splitting EA sports from EA IP like Battlefield, has affected operations
Why the market would be wrong to undervalue EA
While mobile has slumped, historical trends suggest the line of game spending has refound its steady growth state post the Covid surge, and is due to resume it’s previously consistent moderate growth.
EA stands to benefit from rising tides of consumer spending on mobile, as it has a strong market share in this space with top titles including:
Context of Industry Overview (as per Cowen Equity Research)
- Market sentiment: bullish long-term fundamental outlook
- EBITDA multiple: 14–18x range (group average is currently 11x based on FY24 estimates)
- PE ex-cash multiples: 20–25x range (normalized earnings power)
- Investors anticipate return to growth after a sluggish performance since mid-2021 for several reasons: (1) console/PC growth spurred by slate of title releases + hardware supply constraint easing, pushing PS5 unit sales up (2) despite slew of new titles, revenue of live services on legacy games has not slowed, indicating growth of pie rather than zero-sum (3) mobile consumer spending expected to increase to get back on track with historical growth trendline
*Twitch as proxy for engagement (from which follows monetization): while the relationships arenot perfect, and comparisons across games are difficult, looking at the viewership trend for an individual game over time has historically yielded valuable signals about game performance. Looking at viewership en masse similarly has been a signal for industry engagement and monetization trends. Cannibalization from new competitive platform Kick may distort Twitch as a sole signal.
Tidbit: Interview with a FIFA player
“Inclusion of women in the fantasy teams has made me care about women’s sports. My girlfriend has started to play with me on the couples teams against other couples, made it far more inclusive.”
Perhaps as FIFA slumps with ultimate team controversy and loss of license, the key to growth will be capturing female market of FIFA players, and eventually converting the female mobile audience to console
