What To Expect From Electronic Arts’ Q2?

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Electronic Arts

Electronic Arts (NASDAQ: EA) is scheduled to report its fiscal FYQ2 2023 results on Tuesday, Nov 1. We expect the company to post revenue and earnings per the consensus estimates. The company should benefit from its FIFA 23 and Madden 23 launches during the quarter. The company will likely see gross margins expand during the quarter. Not only do we expect Electronic Arts to navigate well during the quarter, but we also find its stock to have ample room for growth, as discussed below. Our interactive dashboard analysis on Electronic Arts Earnings Preview has additional details.

(1) Revenues expected to align with the consensus estimates

  • Trefis estimates Electronic Arts’ fiscal Q2 2023 revenues (total bookings) to be around $1.8 billion, in line with the consensus estimate as well as the company’s guidance.
  • The company should benefit from its live services offering, primarily for the FIFA franchise.
  • Looking back at Q1, the company reported revenue of $1.3 billion (total bookings), down 3% y-o-y, primarily due to changes in deferred revenues.
  • Looking at revenues by platform, Mobile revenue was up a solid 48% y-o-y, aided by the company’s acquisition of Glu last year.
  • Our dashboard on Electronic Arts Revenues offers more details on the company’s segments.
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(2) EPS likely to be in line with the consensus estimates

  • Electronic Arts’ fiscal Q2 2023 adjusted earnings per share (EPS) is expected to be $1.38 per Trefis analysis, in line with the $1.37 consensus estimate.
  • The company’s adjusted net income of $131 million in fiscal Q1 2023 reflected a 43% decline from its $230 million figure in the prior year’s quarter.
  • The company is looking to bring down its advertising costs to levels before Apple made changes to its ad tracking policies. This should aid the company’s operating margins in the future.
  • The company saw gross margin expand in Q1, led by a higher mix of console revenues, a trend expected to continue in the near term.
  • For the full-fiscal 2023, we forecast adjusted EPS to be higher at $7.19, compared to $7.02 in fiscal 2022.

(3) EA stock looks like it has ample room for growth

  • We estimate Electronic Arts’ Valuation to be around $152 per share, which is 19% above its current market price of $128.
  • This represents a forward P/E multiple of 21x for the company based on our adjusted EPS forecast of $7.19 for fiscal 2023.
  • At its current levels, EA stock is trading at 18x forward adjusted earnings, compared to the last three-year average of 22x.
  • If the company reports upbeat Q2 results and provides an outlook better than the street estimates, it is likely that the P/E multiple will be revised upward, resulting in higher levels for EA stock.
While EA stock looks like it has ample room for growth, it is helpful to see how Electronic Arts’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis plus recent market volatility has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Teradata vs. Crane.

With inflation rising and the Fed raising interest rates, among other factors, Electronic Arts stock has fallen 3% this year. Can it drop more? See how low Electronic Arts stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 EA Return 10% -3% 62%
 S&P 500 Return 6% -20% 70%
 Trefis Multi-Strategy Portfolio 4% -23% 204%

[1] Month-to-date and year-to-date as of 10/28/2022
[2] Cumulative total returns since the end of 2016

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