Can Q3 earnings help EA’s share price recover?

Video gaming giant Electronic Arts [EA] is expected to report a 11.02% growth in year-over-year revenues and a 4.21% hike in earnings when it releases its third quarter – ending 31 December – results  on 1 February.

Analysts at Zacks forecast that the group, which makes games such as Madden NFL 22 and The Sims, will post revenues of $2.66bn and earnings per share of $3.22. EA Sports  is the brand under which it produces games affiliated with well-known sporting events.

The EA share price could climb after the results if there is continued demand from gamers, new and old, as pandemic-related social restrictions are lifted.

New launches such as Battlefield 2042, despite some concerns over its popularity, are forecast to have done well over the holiday season, as emergence of omicron hemmed in holiday travel. EA Sports share price is likely to be further lifted by sales of titles like the perennial favourite FIFA and its live interactive gaming events .

“We have growth drivers in place this year, next year and beyond,” said CFO Blake Jorgensen at the previous quarter’s release.

The EA share price has remained fairly flat in 2022

Over the past 12 months the EA share price has dropped around 9.3%. During that period, it reached a height of $148 in mid-June and a low of $120 in early January.

Despite the tech freefall in the markets amid fears of higher inflation and interest rates, the EA stock price had risen by 5.4% in the first three weeks of the year, though it has since fallen to hit $131.92 at the close on 28 January.

EA share price’s existing drivers have helped but Microsoft’s recent $68.7bn acquisition of fellow games maker Activision Blizzard has also sparked more investor interest in the sector.

Investor sentiment remains positive, with a consensus ‘buy’ rating based on 22 analysts polled by MarketBeat, though the current EA share price is still shy of the price target of $166.23.  

M&A buzz could reinvigorate EA stock price

Rumours of merger and acquisition activity could provide a boost for the EA share price. Research firm Enders has suggested that Sony, which has recently been snapping up game studios, might be eyeing EA games stock. EA is “likely to be the favourite” for Sony, said Enders.

Handler, another research firm, threw Disney’s [DIS] name into the ring of potential acquirers. It said that buying EA would be a “great way for Disney to build upon its digital future and for CEO Bob Chapek to step outside Bob Iger’s shadow”.

Handler added that combining EA Sports and ESPN could also open up lucrative opportunities for the group.

MoffetNathanson’s Clay Griffin said game publishers were attractive acquisition candidates for tech firms given the growth of gaming and the arrival of the metaverse. “They have the financial brawn to make the metaverse happen,” said Griffin. “But perhaps don't have ready-made IP or core competency in producing gaming content that will be required for mass market acceptance.”

“They have the financial brawn to make the metaverse happen. But perhaps don't have ready-made IP or core competency in producing gaming content that will be required for mass market acceptance” - MoffettNathanson's Clay Griffin

Q3 revenue beat expectations

In its second quarter EA reported a 27% year-over-year rise in net bookings to $7bn and net revenues of $1.82bn, up from $1.15bn in the same period last year. Earnings per share (EPS) came in at $1.02, up from $0.63.

Its revenues beat expectations of $1.76bn but were below EPS forecasts of $1.17.

EA said demand for games such as Star Wars Galaxy of Heroes had helped its numbers, alongside the popularity of its live services.

“This was the strongest second quarter in the history of Electronic Arts, with more players around the world joining and engaging in our leading franchises, new launches and live services,” said EA’s chief executive Andrew Wilson.

The Electronic Arts share price edged up 4% in the week after the announcement on 3 November.

The outlook is still uncertain

According to CNN, analysts expect EA to report earnings per share of $3.22 and revenues of $2.7bn in the third quarter.

If it reaches these levels and receives encouraging forward guidance in terms of bookings and future releases, the EA stock price could climb post-announcement.

However, looking further forward, the Electronic Arts share price is tipped to struggle despite solid gaming demand and potential M&A interest from the likes of Sony [SONY] and Disney.

The main drag appears to be the lukewarm reaction from gamers to the Battlefield 2042 launch. Despite a peak of 100,000 players at its launch, Battlefield 2042 currently has a 24-hour peak of just 8,948 users, according to GamingIntel.

Wedbush analyst Michael Pachter lowered the price target on the stock from $200 to $180, stating that full-year EA guidance will “come down on the Battlefield 2042 miss”. If it can’t up its game, the EA share price could soon be in the firing line.