What happened
Shares of Electronic Arts (EA -0.65%) declined by 7.1% on Friday after the video game maker's forward guidance sparked concern among investors.
So what
EA's revenue fell 14.6% year over year to $1.2 billion in the second quarter, mainly due to game launches being slated to take place later in the year than in 2019. Yet several of EA's core franchises performed well, including Madden NFL, which saw its player base surge by nearly 30% over the past year.
EA's cash generation also remained strong. After producing more than $2 billion in operating cash flow during the prior 12 months, the gaming giant is ramping up its capital returns to investors. EA announced a new $2.6 billion share repurchase program to be completed over the next two years. It also initiated a quarterly cash dividend of $0.17. That places the stock's yield at 0.6%.
Electronic Arts stock sank following its Q2 financial report. Image source: Getty Images.
Investors, however, appeared to focus on EA's guidance for the third quarter and fiscal 2021. Management guided for Q3 and full-year revenue of $1.675 billion and $5.625 billion, respectively. That was well below Wall Street's expectations of $2.35 billion and $6 billion.
Now what
EA's lackluster guidance was surprising, as most video game companies have experienced booming demand for game downloads and higher player engagement during the pandemic. EA's disappointing sales forecast made investors question whether these customer behavior trends in the gaming industry will last.
In turn, some investors view EA's new dividend as a tacit admission by the company that its days of heady growth may soon come to an end.
