10-QPeriod: Q3 FY2020

ELECTRONIC ARTS INC. Quarterly Report for Q3 Ended Dec 31, 2019

Filed February 4, 2020For Securities:EA

Summary

Electronic Arts Inc. (EA) reported strong financial performance for the third quarter of fiscal year 2020, ending December 31, 2019. Total net revenue increased by 24% year-over-year to $1.59 billion, driven by robust sales in both product and service categories. The company saw significant growth in its digital segment, with digital net revenue rising 24% to $1.12 billion, primarily fueled by live services, including extra content sales for popular franchises like FIFA Ultimate Team and Apex Legends, and strong full-game downloads from new releases such as Star Wars Jedi: Fallen Order. Profitability also saw a considerable boost, with operating income up 49% year-over-year to $361 million, leading to a net income of $346 million, or $1.18 per diluted share. The company's operational efficiency is highlighted by a stable gross margin and effective management of operating expenses, despite an increase in R&D spending. EA also generated strong operating cash flow of $1.104 billion for the nine-month period, underscoring its healthy financial position and ability to fund its operations and strategic initiatives, including ongoing share repurchases.

Financial Highlights

49 data points
Beta

Revenue

$1.59B

68.1% Gross Margin

Net Income

$346.00M

21.7% Net Margin

EPS (Diluted)

$1.18

Total Assets

$11.16B

Cash & Equivalents

$3.60B

Free Cash Flow

$1.10B

Financial Statements
Beta
Revenue$1.59B
Cost of Revenue$508.00M
Gross Profit$1.08B
Operating Expenses$724.00M
Operating Income$361.00M
Interest Expense$10.00M
Net Income$346.00M
EPS (Basic)$1.18
EPS (Diluted)$1.18
Shares Outstanding (Basic)292.00M
Shares Outstanding (Diluted)294.00M

Key Highlights

  • 1Total net revenue for the quarter grew 24% year-over-year to $1.59 billion, exceeding market expectations.
  • 2Digital net revenue increased by 24% to $1.12 billion, demonstrating continued strength in the company's digital transformation.
  • 3Live services revenue, a key growth driver, saw a significant increase of 41% year-over-year, driven by extra content sales.
  • 4Operating income surged by 49% to $361 million, indicating improved profitability and operational leverage.
  • 5Diluted Earnings Per Share (EPS) was $1.18, a substantial increase from the prior year's quarter, reflecting strong bottom-line performance.
  • 6The company generated $1.104 billion in operating cash flow for the nine-month period, showcasing strong cash generation capabilities.
  • 7EA actively repurchased shares, spending $305 million in the quarter, reflecting confidence in its valuation and commitment to shareholder returns.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in both product and service categories. Key contributors included new game releases like 'Star Wars Jedi: Fallen Order' and 'Need for Speed Heat,' as well as continued robust sales of extra content for live services such as 'FIFA Ultimate Team' and 'Apex Legends'.

The digital segment showed significant strength, with digital net revenue increasing by 24% year-over-year to $1.12 billion. This growth was predominantly fueled by live services, which saw a 41% increase, and a 16% rise in full-game downloads.

As of December 31, 2019, EA held $3.603 billion in cash and cash equivalents, and $1.999 billion in short-term investments, totaling $5.602 billion. The company generated strong operating cash flow and continued its share repurchase program, spending $305 million on repurchases during the quarter.

Yes, the company recognized a significant net tax benefit in the nine months ended December 31, 2019, primarily related to a Swiss intra-entity sale that created a deferred tax asset and a subsequent change in the Swiss statutory tax rate. This resulted in a negative effective tax rate for the nine-month period, though the company noted that excluding these items, the effective tax rate would have been higher.