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Despite the disappointing performance of its major release Battlefield 2042, Electronic Arts ( EA -0.20% ) is seeing record growth, even paying out a small dividend to its investors. In this episode of «The Gaming Show» on Motley Fool Live, recorded on March 21, Fool.com contributor Jose Najarro talks about the highlights of the video game publisher’s recent earnings report.
Jose Najarro: We can see this is right now cash and short-term investments. Plenty of cash and short-term investments, even though they have done a few acquisitions in the past, which we’re going to talk about later on. Even with those acquisitions, they’re still able to have strong cash in short-term investments, more considerably than their debt. Even their cash flow from operations, in theory, is almost a 1-to-1 ratio to their debt. So fundamentally, I really like EA games. One I don’t have in my portfolio, but I’m definitely taking a closer look. Especially if we take a look at some of its major competitors, we have Activision and Take-Two, if we take a quick look at EV to EBITDA ratios for both these companies, EA games is sitting at a cheaper valuation. Obviously, we have Take-Two, which I believe is growing at a faster rate, so maybe that’s why investors give it a little bit heavier valuation. Activision just got acquired by a bigger player. That hefty price for the acquisition is pushing it up. But regardless, I do want to say EA games is looking attractive. Revenue growth right now, like Jon mentioned earlier on, revenue in the gaming department is probably not the best metric to look at, normally it’s bookings, but eventually, they follow suit. Revenue for EA games, it’s up about 6.9% in the most recent quarter. Like I mentioned, EA games right now from all-time highs is down about 15.6%. I just wanted to show some of their most recent highlights for their earnings. This most recent quarter three was the company’s largest in history for net bookings and cash generation. Many people, I think, were not expecting that because, like I mentioned, COVID last year, many people thought that was the prime of gaming. But EA games is saying, no, we’re actually seeing better results this year. They are seeing huge bookings growth in their EA Sports catalog, like I mentioned, FIFA and Madden are big players, and those have grown nearly 10% year to date compared to 2021, where remember, 2021 was super, super strong. The Madden, for example, was one of the highest-selling sports in the United States, and FIFA was one of the highest selling in the Western world during calendar of 2021. Some other things I want to mention are the Apex game that I mentioned. Apex Legends‘ monthly active players were up more than 30% year over year. Again, huge growth in player base, and they are able to monetize those players pretty strong. We can see net bookings are continuing to grow. EA games has done really well of, yes, they make money from full games, but most of their money comes from their digital sales, their subscription services, micro transactions. This is quarter three results. Quarter four is expected to end in the next few days, but they expect huge growth compared to 2021, and look, huge growth compared to 2020. Another thing is operating cash flow. This is a company that has done few acquisitions, and even with those acquisitions, operating cash flow still remains strong. This is why, hey, I believe right now they only place about a 0.5% dividend, but in the future, I do believe they can only make X amount of games. They’re going to have to return that money back to shareholders in other ways. Other things I wanted to show, net bookings by platforms. The two biggest platforms that are growing is first, the mobile department. That grew 68% compared to the same time last year, and PC another. I was actually surprised that the PC market is still growing, but it was growing about 28% quarterly, and net bookings by composition, it seems like they’re growing pretty fairly quarterly in both full games and live services. But this is a company that has taken quite a hit, main reason is, like I mentioned, their guidance fell short because of the failure of Battlefield game, but this is a company that I believe Jon has some pretty cool news, has done a few acquisitions, and they’re using those acquisitions for a purpose.
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