Investors had high expectations heading into the latest earnings report from Electronic Arts (EA 0.26%). The video game industry hasn't seen a slowdown since the pandemic sent engagement to new highs, and rival Activision Blizzard (ATVI +0.00%) confirmed that bullish situation in its impressive earnings announcement in early May.
EA didn't disappoint, either.
The developer said on Tuesday that sales beat expectations thanks to surging demand across several franchises, but especially in subscription-based game services. Let's look at a few ways in which those trends drove record fiscal 2021 fourth-quarter results for EA.
Image source: Getty Images.
1. Bookings growth: 19%
Net bookings, a measure of sales, were up 19% for the three-month period that ended in late March, to $1.5 billion. That result wasn't as impressive as Activision's 36% spike, but it still landed EA at $6.2 billion in bookings for the year, above the $6.1 billion that management had forecast in early February.
There were several winners in the portfolio in early 2021. FIFA, Apex Legends, and Star Wars: Galaxy of Heroes all notched strong growth even as Activision Blizzard's Call of Duty franchise added over 100 million new players. "EA delivered a strong quarter," CFO Blake Jorgensen said in a press release.
2. Stock buyback spending: $325 million
EA has done a good job at shifting its business model into more of a year-round subscription payment for its titles rather than a one-time purchase that happens around the holiday season. The move is helping cash flow in a big way.
EA Cash from Operations (TTM) data by YCharts. TTM = trailing 12 months.
Operating cash hit $1.9 billion this fiscal year compared to $1.8 billion last year and $1.5 billion in fiscal 2019. The ample resource posture has management spending more on acquisitions like its recent Glu Mobile purchase. Stock buyback spending has also been aggressive, at over $300 million in each of the last two quarters.
3. Growth outlook: $7.3 billion in net bookings
EA is predicting that net bookings will jump to $7.3 billion this year compared to the past year's $6.2 billion. Acquisitions, plus continued growth in franchises like Apex Legends and FIFA should help the company close the sales gap with Activision Blizzard, which is targeting nearly $9 billion of net bookings this year.
"We're now accelerating in [fiscal 2022]," CEO Andrew Wilson told investors, "powered by expansion of our blockbuster franchises to more platforms and geographies, a deep pipeline of new content, and ... acquisitions."
That's essentially the strategy that has helped Activision Blizzard build itself into a dominant video game publisher over the last three years.
Sure, the pandemic created an ideal selling environment for companies marketing digital entertainment products. But EA capitalized on all the new demand and now has a shot at fundamentally stronger sales, profit margins, and cash flow, even as the virus threat wanes through fiscal 2022. These wins should support strong returns for shareholders from here, especially given that EA's stock has trailed the broader market's surge since mid-May 2020.
