Electronic Arts (EA) Q1 Earnings: Is A Surprise In Store?

Electronic Arts Inc. (NASDAQ:EA) is set to report first-quarter fiscal 2017 results on Aug 2. In the previous quarter, the company reported a positive earnings surprise of 26.67%. On an average, EA has delivered a positive earnings surprise of 49.28% in the last four quarters.

Let’s see how things are shaping up for this quarter.

Factors at Play

We believe that EA’s strong games portfolio, strength in new consoles and continuing growth in the mobile market are key growth catalysts. Moreover, strong growth in digital sales coupled with cost optimization initiatives will be beneficial going forward.

Last quarter, the company recorded growth in digital revenues and witnessed continued strength in Star Wars Battlefront sales. The company sold 14 million units of Battlefront in fiscal 2016. In the to-be-reported quarter, the new titles that are likely to drive sales include Mirror’s Edge Catalyst and the Secret Life of Pets.

For the first quarter, the company expects non-GAAP revenues of $640 million, 8% lower than the prior-year quarter revenues due to tougher year-over-year comparisons with Battlefield Hardline and a one-time recognition of FIFA Online 3 revenues from China. Also, the first quarter of fiscal 2017 had 13 weeks compared with 14 weeks in the first quarter of fiscal 2016. The company projects non-GAAP loss per share of 5 cents as against earnings of 15 cents reported in the prior-year quarter.

Also, the company faces stiff competition from other game makers such as Activision (NASDAQ:ATVI) , Glu Mobile Inc. and others. Additionally, higher consumer spending on new consoles may cannibalize software sales in the near term.

ELECTR ARTS INC Price and EPS Surprise

ELECTR ARTS INC Price and EPS Surprise | ELECTR ARTS INC Quote

Earnings Whispers

Our proven model does not conclusively show that Electronic Arts is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Electronic Arts has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 14 cents.

Zacks Rank: Electronic Arts has a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a couple of stocks, which you may consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

CDK Global, Inc (NASDAQ:CDK) with an Earnings ESP of +4.26% and a Zacks Rank #1

GoDaddy Inc. (NYSE:GDDY) with an Earnings ESP of +50.00% and a Zacks Rank #3.