Electronic Arts (EA 0.46%) reported fiscal 2018 second-quarter financial results on Oct. 31. The video game maker is benefiting from the growth of digital sales of games and related content, which is boosting its profitability and cash production.

Electronic Arts results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Net revenue

$959 million

$898 million

7%

Net loss

($22 million)

($38 million)

N/A

Loss per share

($0.07)

($0.13)

N/A

Data source: Electronic Arts Q2 2018 earnings release.

What happened with Electronic Arts this quarter?

Digital net bookings -- essentially, the number of products and services EA sold via digital channels -- jumped 19% to $579 million, and now represent 63% of EA's business on a trailing-12-month basis, up from 57% in the prior year.

Live service net bookings leapt 22% to $310 million, fueled by strong growth in FIFA and Madden Ultimate Team. Mobile net bookings rose 9% to $150 million, mostly due to the growth of Star Wars: Galaxy of Heroes and Madden Mobile. While full-game PC and console downloads generated net bookings of $119 million, a 28% year-over-year increase, driven by Madden NFL and Battlefield 1. 

EA Sports Madden NFL game art of New England Patriots quarterback Tom Brady

Image source: Electronic Arts.  

"We saw a notable shift to digital in our sports titles and remarkable growth in Ultimate Team," CFO Blake Jorgensen said in a press release. "Our sports titles have once again shown their value in delivering a stable and dependable performance. This quarter demonstrates how they can drive our business and offers a window into how our games will evolve over the months and years to come."

This shift to digital distribution continues to be a boon to Electronic Arts' business. Management expects gross margin to rise to 74.6% in fiscal 2018, up from 73.2% in fiscal 2017. Importantly, this increased profitability is helping to improve Electronic Arts' cash generation; its operating cash flow over the past 12 months rose to a record $1.8 billion. Moreover, management is committed to returning a significant portion of this cash to shareholders via stock repurchases, including $153 million in the second quarter.

Looking forward

Electronic Arts expects third-quarter net revenue of approximately $1.135 billion and a net loss of $64 million, or $0.21 per share. 

In addition, EA updated its financial forecast for fiscal 2018, including:

  • Net revenue of approximately $5.075 billion
  • Net income of $1.136 billion, up from a prior estimate of $1.125 billion
  • Earnings per share of $3.63, up from $3.57
  • Operating cash flow of $1.6 billion, versus $1.575 billion

"It was a strong second quarter for Electronic Arts, with players around the world captivated by our new EA SPORTS titles, top-performing mobile games, and expanding esports competitions," CEO Andrew Wilson said. "The digital transformation is accelerating across our industry, and we are well-positioned for continued growth with more stunning new titles, thriving event-driven live services including competitive gaming, and continuing innovation for our players on all platforms."