Lower Than Expected Battlefield V Sales Weigh On Electronic Arts’ Q3 FY 19 Performance
Electronic Arts (NASDAQ:EA) recently reported its Q3 fiscal 2019 results, which were below the street estimates. Net bookings were down in the high teens, due to lower than expected sales of Battlefield V, which will likely impact the company’s Q4 performance as well. Accordingly, the company lowered its full fiscal guidance, and the stock price dropped over 13% following the earnings release. Looking forward, the company’s full fiscal year 2019 earnings will likely decline in mid-single-digits, but should grow thereafter, led by the demand for live services, primarily FIFA and Madden Ultimate Team. We have created an interactive dashboard analysis ~ A Quick Snapshot of Electronic Arts’ Q3 Fiscal 2019 Performance And Trefis Estimates For The Full Fiscal Year. You can adjust various drivers to see the impact on the company’s overall earnings, and price estimate.
Expect Net Bookings To Decline In High Single-Digits In Fiscal 2019
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Electronic Arts’ overall revenues will likely decline in mid-single-digits, led by the Products segment, which has seen 25% decline in sales during the nine month period ending December 2018. This can primarily be attributed to Battlefield I and Mass Effect: Andromeda. The company also launched Battlefield V in November 2018, and it was expected to aid the overall top line growth in Q3 and Q4 for fiscal 2019. However, the game hasn’t seen great response, amid mixed reviews, and stiff competition from Take Two Entertainment’s Red Dead Redemption 2, which was widely successful, and shipped over 23 million units since its launch in late October 2018. This compares with 7 million units of Battlefield V sold by Electronic Arts since November. The lower than expected performance of Battlefield V can partly be attributed to the company’s decision to release solo campaign over its battle royale mode, which is still yet to launch. Battle royale mode has become more popular in shooter games, and this has weighed on the games’ sales.
Looking at Services, revenues will likely grow in mid-teens, led by Ultimate Team for FIFA and Madden. FIFA saw strong growth in the first three quarters of fiscal 2019, benefiting from the FIFA World Cup 2018. The company is also seeing growth in transition from FIFA Online 3 to FIFA Online 4 in Korea, while the transition is slower in China. Ultimate Team has been a big success for Electronic Arts, allowing the company to earn from matchmaking services. This trend will likely continue in the near term, and aid the earnings growth for the company.
Overall, the revenues will likely be a little under $4.90 billion in fiscal 2019. We forecast the earnings to be around $3.19 per share in fiscal 2019, reflecting a mid-single-digit decline to the prior year fiscal. Our price estimate of $86 for Electronic Arts is based of a 27x forward price to earnings multiple.
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