What happened
Shares of video game giant Electronic Arts Inc. (EA 1.30%) jumped as much as 10.4% in trading Wednesday after announcing another great quarter. As of 11:40 a.m. EST shares had given up some of their gains but were up 8.3% on the day.
So what
Total revenue was up only slightly to $1.16 billion and net loss ballooned from $1 million to $186 million, or $0.60 per share. But the loss was driven by a $176 million tax expense because of the recently passed tax law. On an adjusted basis, revenue of $1.97 billion fell slightly below expectations of $2.01 billion.
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What really caught investors' attention was guidance for the fiscal fourth quarter. Management expects net revenue of $1.532 billion with net income of $579 million and earnings of $1.86 per share. Bookings, which are the metric closely watched by analysts and investors, are expected to be $1.23 billion, topping the $1.18 billion analysts were expecting.
Management said that digital revenue jumped 14% to $780 million, another indicator that high-margin digital sales are gaining traction with gamers.
Now what
As Electronic Arts gains traction in digital sales, investors should see margins and cash flow continue to rise. For example, operating cash flow was $849 million in the fiscal third quarter and $1.51 billion for the calendar year, allowing for the repurchase of 5.6 million shares of stock.
Don't let the quarterly loss fool you, Electronic Arts is a cash machine and increasing engagement in games like FIFA, Star Wars Battlefront II, and The Sims should keep digital revenue flowing in 2018. For today, investors were just pleased that the fiscal fourth quarter is expected to be stronger than expected.
