Full-year earnings guidance raised by 25% based on higher operating efficiency, tax benefit
- 2QFY3/24 Revenue beat consensus by 2% on new games coming in stronger, but income before tax declined 10% y-o-y on operating expense increases for new game launches
- Net income increased 33% y-o-y to US$399m, above consensus, driven by weaker-than-expected operating expense and a one-time tax benefit
- Management raised FY3/24 earnings projection by 25% based on continued operational savings
2QFY3/24 earnings beat. EA’s net bookings increased by 4% y-o-y to US$1.8bn in 2QFY3/24, 2% higher than consensus. The growth was driven by new releases of EA SPORTS FC combined with solid user engagement of the already existing EA SPORTS franchise. Operating expenses increased by 7% y-o-y to US$1.1bn and OPEX ratio expanded by 3ppt y-o-y to 56% due to higher marketing expenses for new game launches during the quarter. Nevertheless, operating expense growth is still weaker than consensus expected. Income before tax declined 10% y-o-y to US$391m due to the increase in operating expenses. Net income increased 33% y-o-y to US$399m, above consensus, thanks to stronger revenue growth and a one-time tax benefit of c.US$92m. If excluding the one-off tax benefit impact, earnings came in 13% higher than consensus. EA has declared a quarterly cash dividend of US$0.19 per share, the same as 2QFY3/23.
FY3/24 earnings guidance raised. Management revised up net income guidance by c.25% to US$1.2-1.3bn, representing a 50-62% y-o-y growth, ahead of the market expectation of 40%. The higher earnings mainly reflect operational savings and a one-time tax benefit. The company lowered FY3/24 guidance for operating expenses by c.10% to US$4.2-4.3bn. We believe continued cost-saving measures will drive higher operating leverage in FY3/24. We also expect EA to deliver strong live services growth across the EA SPORTS franchise and the newly launched EA SPORTS FC and EA SPORTS Madden NFL, contributing to solid earnings growth in the coming quarters.