EA’s Upcoming Earnings Promise to be Dramatic

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November 1, 2016 1:16pm NASDAQ:EA

electronic-arts-ea-logoVideo game publisher Electronic Arts Inc. (NASDAQ:EA) is slated to deliver its latest earnings report after the closing bell today. Let’s take a look at the factors that could lead to a beat or a miss.

Wall Street expects EA to report adjusted fiscal Q2 EPS of $0.43 on revenues of $1.09 billion for the latest period. Both of those numbers would be down significantly from last year’s reported results of $0.65 per share and $1.15 billion in revenue.

On a non-adjusted basis, analysts expect EA to report a loss of about $51 million or $0.17 per share, although typically investors only pay attention to the non-GAAP (adjusted) results.

For the full fiscal year 2017, EA has forecast $4.750 billion in revenue. Investors will be keying in on that forecast during tomorrow’s report for any potential changes to the company’s outlook.

As a video game publisher, EA’s performance hinges almost entirely on the reception of its big-budget titles. Some of its recently-launched games include Titanfall 2, Battlefield 1, FIFA 17, Madden 17, and NHL 17. Madden 17 performance will be of particular interest to many fans, to see if the NFL’s big TV ratings decline (~11% so far this season) is carrying over to fewer gamers playing Madden.

Titanfall 2 will also be spotlighted, as early indications show that title hasn’t been selling nearly as well as the original Titanfall. Analysts at Wedbush are bullish on the game, however, recently reiterating their that Titanfall 2 sales will significantly exceed 9-10 million units level, perhaps going as high as 12 million units.

The reaction to EA’s earnings report could be severe. The stock tends to have violent swings in general, and the options market is implying a big move ahead of earnings. Based on the EA weekly November 4 $77 straddle, and EA’s current price around 78.41, the options market is pricing in a move of about 7% in either direction by weekly expiration, which is on Friday of this week.

Wall Street firms are generally positive on the stock heading into earnings, with 10 of 15 analysts rating the stock a Buy or better, and the remaining 5 rating it a Hold. Not a single major Wall Street analyst currently rates EA a Sell, which isn’t all that surprising, considering its strong performance this year.

Tune in after the bell on todat, when we’ll have full coverage of EA’s latest earnings results.

EA shares fell $0.17 (-0.22%) to $78.35 in Tuesday afternoon trading. Year-to-date, EA has gained 14.05%, versus a 3.47% rise in the benchmark S&P 500 during the same period.


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