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Can Electronic Arts Surprise Earnings Estimates this Season? - Analyst Blog

Zacks Equity Research
Updated

Electronic Arts Inc. (EA) is set to report third-quarter fiscal 2015 results on Jan 27. In the previous quarter the company reported earnings of 62 cents per share, beating the Zacks Consensus Estimate of 43 cents. On an average, EA has delivered positive earnings surprise of 322.16% in the last four quarters.

Growth Factors

EA has been the primary beneficiary of the ongoing shift from physical to digital. The digital business is expected to remain an important growth driver for the company and will offset weak growth in packaged goods. The company expects the digital business (50% of revenues) to continue to grow in fiscal 2015, primarily driven by strong growth in mobile business. Full-game downloads on PCs and consoles are also seeing strong growth Moreover, its free-to-play game portfolio such as FIFA World and Battlefield Heroes continues to attract gamers at a significant rate, which is expected to drive strong advertising revenues over the long run.

However, higher spending on new consoles is expected to negatively impact software sales. Moreover, stiff competition from Activision (ATVI) and Glu Mobile (GLUU) are expected to keep margins under pressure.

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For the third quarter of fiscal 2015, EA expects to generate non-GAAP revenues of approximately $1.275 billion, lower than the Zacks Consensus Estimate of $1.287 billion. The company expects non-GAAP earnings of $0.90 per share for the third quarter, while the Zacks Consensus Estimate for the same is pegged at $0.76. Non-GAAP gross margin is expected to be 70.5%.

Earnings Whispers?

Our proven model does not conclusively show that EA is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: EA currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 82 cents.

Zacks Rank: EA has a Zacks Rank #1 (Strong Buy), which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

A stock you may want to consider as our model shows it has the right combination of elements to post an earnings beat this quarter is Apple Inc. (AAPL), with an Earnings ESP of +0.78% and a Zacks Rank #2 (Buy).


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APPLE INC (AAPL): Free Stock Analysis Report
 
ACTIVISION BLZD (ATVI): Free Stock Analysis Report
 
ELECTR ARTS INC (EA): Free Stock Analysis Report
 
GLU MOBILE INC (GLUU): Free Stock Analysis Report
 
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Zacks Investment Research