Electronic Arts (NASDAQ:EA) is set to report fourth-quarter and fiscal-year 2021 earnings results on Tuesday, May 11. The video game developer and seller is hoping to close its fiscal year off on a strong note. The company launched some major titles in the third quarter, and those are likely to have fueled sales in the fourth quarter (covering the first three months of 2021).

Still, sales didn't surge for Electronic Arts during the pandemic in the same way they did for other at-home entertainment companies. One reason could be its reliance on new and updated franchise gaming titles to generate revenue (players get bored with an old game). That's why when the company reports fourth-quarter earnings on Tuesday, growth in net bookings will be a key metric you will want to want to focus on. 

An adult male playing a video game on a computer.

Image source: Getty Images.

Did the new game releases increase net bookings?  

The company defines net bookings as net products sold digitally or physically during the period. It is calculated by adding total net revenue to the change in deferred net revenue for online-enabled games. Electronic Arts generates most of its sales to gamers using consoles rather than personal computers or mobile devices.

It stands to benefit from the popularity of two next-generation consoles: Sony's PlayStation 5 and Microsoft's Xbox Series X. Gamers have been eager to get their hands on one of these but each is still in short supply even six months after a November 2020 release. Clearly, the manufacturers underestimated the insatiable appetite for these products. The devices are sold out at major retailers most of the time, with few opportunities for gamers to buy without resorting to secondary markets at marked-up prices.  

That likely depressed sales of two new games that Electronic Arts launched in the third quarter specifically tailored for the next-gen consoles (FIFA 21 and Madden NFL 21). The good news is that the demand for next-gen consoles is high, and eventually, manufacturing will catch up with the demand. When that happens, it could give Electronic Arts a shot in the arm.

That may be what gave CEO Andrew Wilson confidence to say this in the company's third-quarter conference call: "After starting this fiscal year with guidance for $5.55 billion in net bookings, we're now expecting to achieve nearly $6.1 billion in net bookings for the full year. And we are projecting growth in our business to continue next fiscal year."

That's why when it reports fourth-quarter earnings on Tuesday, it will be vital to look at net bookings. In addition, it will give insight into how gamers respond to the new games launched by Electronic Arts. 

What this could mean for investors 

Analysts on Wall Street expect Electronic Arts to report revenue of $1.39 billion and earnings per share of $1.05. If the revenue figure is reported as expected, it would be an increase of 14.5% from the same quarter last year.

Share prices of Electronic Arts stock are flat year to date, and they are trading at a forward price-to-sales ratio of 23. It's not a high-growth stock; it compounded revenue at an annualized growth rate of 4.2% over the last decade. The popularity of next-gen consoles could increase this compound annual growth rate by a few percentage points over the next decade. If you're looking for a video game stock trading at a fair price, Electronic Arts should make your list. The upcoming earnings report release should help in your decision-making.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.