Investors can be hard to please sometimes. Electronic Arts' (NASDAQ:EA) stock fell after the company announced record metrics for its fiscal second quarter thanks to a flood of hit content releases and surging demand for at-home entertainment. The video game giant declined to boost its 2020 outlook, in a break from peers like Activision Blizzard (NASDAQ:ATVI). But EA is still expecting a banner year for sales and profits ahead.
In a conference call with investors, CEO Andrew Wilson and his team explained the factors that have them feeling confident about the business heading into the crucial holiday shopping season. They also added context to that stable 2020 outlook. Let's look at some highlights.
Where things stand
We delivered eight new games so far this year, and our network has grown to more than 330 million unique accounts as tens of millions of new players have joined to enjoy more of our amazing games and content. EA Sports continues to be a leader in sports interactive entertainment. Madden NFL 20 was the most successful game in franchise history last year and now Madden NFL 21 already has nearly 30% more players year over year from launch. Our FIFA franchise is engaging more than 100 million players globally.
EA picked a good time to raise its intellectual-property game, as the focus on home entertainment during the pandemic has given it a huge platform from which to launch its digital products. This list of hit releases is dominated by the sports franchises like FIFA and Madden, but EA notched wins across its PC and mobile channels, too.
Stepping back, net bookings, a measure of consumer sales, are up 8% to $5.6 billion over the past 12 months. That's a slower expansion pace than Activision Blizzard has seen, in part because a few key titles were delayed and pushed out of the fiscal second quarter. But EA is still pushing into record revenue territory.
Reaching $2 billion in annual cash flow
"The strength and dependability of our cash flow has led us to start a new repurchase program this quarter and to initiate a dividend for the first time in the company's history," CFO Blake Jorgensen said.
Since its sales are tilting more toward subscription purchases, EA's cash flow is a great indicator of the broader health of the business. That trend is decidedly positive, with operating cash flow reaching $2.04 billion over the past year compared with $1.75 billion a year earlier.
EA is dedicating some of that cash toward capital investments, but there was still enough to push cash holdings up 24% this quarter. That strong financial position persuaded management to initiate a dividend payment while boosting its stock repurchase plans. Executives are aiming to deliver $3 billion to shareholders over the next two years.
More growth is on the way
"We will continue to reach more players across more platforms in Q3," Wilson said.
EA only affirmed its fiscal year outlook, and that cautious move persuaded investors to push the stock lower following the second-quarter report. Management said bookings will be pressured slightly from several release delays that are pushing sales into early fiscal 2022 as development teams iron out any potential design issues. That forecast translates into an 11% net bookings increase this year, but EA isn't expecting a quick step backward in 2022.
Instead, management believes it can keep the pace of new video game releases going so that EA boosts sales and profits again next year despite the comparison with pandemic-fueled growth in fiscal 2021. That flood of content is the best reason to expect even more cash returns next year.