21 Jun 2020
Posted in Business Fundamentals
EA’s sentimental decline is consequence of full-game net bookings and cash flow issues, says GlobalData
A slump in full game net bookings and cash flow drove a sentimental decline for Electronic Arts (EA), says GlobalData, a leading data and analytics company.
According to Globaldata’s Filing Analytics database, EA’s sentiments declined by over 18% in the first quarter (Q1) of 2020* as compared to the fourth quarter (Q4) of 2019. Full-game net booking slumps in the digital and console segments impacted sentiments in Q1 2020. Net bookings (full-game) were down 5% in Q1 2020 compared to Q1 2019. The decline in quarterly mobile gaming revenue (down 3% compared to Q1 2019) also influenced sentiments.
Rinaldo Pereira, Senior Analyst at GlobalData, says: “Closure of physical retail stores did not impact EA’s business, due to a shift towards digital sales. In 2009, physical sales generated around 85% of net bookings, but in 2019 it was only 20%. However, a decline in Q1 2020 cash flow (down 17% compared to Q1 2019) also hit sentiments.”
The management’s statements on possible future pandemic-related risks influenced the sentiment score for Q1 2020. According to EA, third-party title production is at higher risk of facing the contagion’s impact. EA has also commented on the risks around marketing and sport event cancellations.
Following the earnings release on May 5, 2020, EA’s share price fell by over 3% in the next day, due to negative investor sentiments around pandemic related risks. However, in the second week of May 2020, the share price recovered, as the video game industry gained further traction due to prolonged social distancing norms. Stay at home orders have positively influenced the company’s business, as EA saw an increase in usage and engagement in its major titles of FIFA (around 100 million players) and Madden NFL during Q1 2020.
Pereira concludes: “According to EA, its digital focus will enable it to reach more customers via Google Stadia and Steam. However, geopolitical situations and the pandemic have forced EA and other publishers such as Microsoft, Sony, and Ubisoft to postpone launches. As the world continues to grapple with the coronavirus and geopolitical situations, it will be interesting to see if EA can reach its target of 14 title launches by mid-2021 – while also being influenced by the dawn of cloud gaming and 5G.”
* Ended March 2020: earnings transcript released on May 5, 2020