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Digital Growth Fuels Electronic Arts Inc. Earnings

Electronic Arts (NASDAQ: EA) reported fiscal 2018 first-quarter financial results on July 27. The video-game publisher is enjoying broad-based growth across its console, PC, and mobile product lines.

Electronic Arts results: The raw numbers

What happened with Electronic Arts this quarter?

Total net revenue rose 14% year over year to $1.4 billion, fueled by a 28% jump in digital revenue.

Notably, live services net sales leapt 22% to $420 million, driven by the strong performance of FIFA Ultimate Team, Battlefield 1, and The Sims 4. Mobile net sales rose 6% to $150 million, primarily because of the growth of FIFA Mobile, Star Wars: Galaxy of Heroes, and NBA Mobile. And full-game PC and console downloads generated net sales of $111 million -- a 32% increase -- mainly because of robust sales of Mass Effect: Andromeda.

This robust digital sales growth furthered Electronic Arts' shift toward digital distribution, as 61% of its first-quarter total net revenue came from digital game sales, compared with 54% in Q1 2017. That helped gross margin improve to 89.4% from 85.9% in the year-ago period. In turn, gross profit increased 19% to $1.3 billion. And with operating expenses increasing only 4%, operating income surged 33% to $743 million. All told, net income soared 46% year over year to $644 million, or $2.06 per share.

Moreover, Electronic Arts' heightened profitability helped bolster its cash production, with Q1 operating cash flow rising to a record $176 million. "Our operating cash flow was the highest ever for a first quarter and underlines how live services have fundamentally transformed our business model," CFO Blake Jorgensen said in a press release. "Driven by innovation and live services, we expect to continue to grow our profitability and cash generation."

Looking forward

For the second quarter, Electronic Arts anticipates net revenue of approximately $955 million. The company also expects to generate a net loss of $57 million, or $0.18 per share.

EA also reiterated its guidance for fiscal 2018, including:

  • Net revenue of approximately $5.075 billion.
  • Net income of $1.125 billion, or $3.57 per share.
  • Operating cash flow of $1.575 billion.

"Q1 was an outstanding quarter, with thriving player communities in our top franchises like Battlefield, our EA Sports portfolio, Star Wars, and The Sims continuing to grow our network and drive our digital business," added CEO Andrew Wilson. "We have built strong momentum, and now we are accelerating into a year of tremendous innovation, where extraordinary new games, content-rich live services, and expanding global competitions will deliver more fun for our players and fuel growth for Electronic Arts."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.