EA’s Digital Sales Soar, Origin Has 50 Mil Users (Not Really)
Electronic Arts has made its Q1 Fiscal Year 2014 results public, and the results are clear: it is fully committed to the all-digital future.
The company also happens to be swimming in money, but that’s only going to come as a shock to those of you waking up from a three-year coma.
Boasting strong revenues overall, the majority of the company’s earnings – a whopping 76 percent, $378 million – came from digital platforms. Of that amount, DLC and free to play contributed $177 million. That’s thanks to strong performances from Battlefield 3 digital content, Star Wars: The Old Republic, FIFA 13 (which saw $70 million in digital revenues), FIFA Online 3 (which grew 88 percent year over year compared to FIFA Online 2), as well as successful mobile titles Real Racing 3 and The Simpsons: Tapped Out. For the 12 month period ending in June, non-GAAP1 digital net earnings were $1.72 billion, an increase of 28 percent.
Mobile gaming was particularly strong, generating $103 million for the quarter, fueled largely by iOS devices. EA cited Apple as its largest retail partner for the quarter. There’s also some good news for companies like Zynga: EA is de-prioritizing social gaming, focusing more on mobile and HD consoles going forward. If Zynga’s newly-minted CEO Don Mattrick wants turn things around, he’ll be able to do so sans a major competitor in that space.
On the other hand, despite crowing from EA management to the contrary, full game downloads were soft. While EA boasted 50 million current Origin subscribers, it would be foolish to believe those numbers represent people who actually prefer the service to competitors like Steam. For one thing, EA requires Origin registration for its games, artificially boosting its total user base. For another, downloads of full games accounted for a relatively paltry $37 million. To put that number in perspective, a full-price AAA game that sells one million copies nets just shy of $60 million.
“On the next gen pricing strategy, we have not announced, obviously, any pricing. That is set by the retailers.” – Peter Moore, during the call.
Overall, the company’s finances are exceptional for what it reiterated again and again would be an off year, due to the transition to next-generation consoles. During the quarter, it posted $495 million in non-GAAP net revenue, in excess of previous guidance and above earnings for the same quarter last year. GAAP revenues total $949 million, with operating expenses of around $550 million that include approximately $4 million in “restructuring” expenses related to recent layoffs. This puts Electronic Arts on track for its primary goal of keeping expenses flat while the transition plays out, and with the news that Activision Blizzard may be forced to take a steep financial haircut at the behest of corporate parent Vivendi SA, EA seems poised to remain the number one video games publisher in the Western market.
The search for a new CEO is ongoing, with no news provided aside from assurances that the Board of Directors is “fully committed” to finding the right candidate. This may explain why despite the overwhelmingly positive news, the company’s stock price dropped slightly after the call, to $23.83 per share, after opening this morning at $24.43.
For the second quarter, Electronic Arts has 5 “major titles” planned for release, among them NHL 14 and Madden NFL 25, all but guaranteeing a hefty take. It projects GAAP revenues of $625 million from July through September. Meanwhile, EA refused to rule out one potential source of new money, the rumored hike in AAA games for the next generation. “On the next gen pricing strategy, we have not announced, obviously, any pricing,” Peter Moore told attendees. “That is set by the retailers. We’re working on our pricing strategy right now for the holidays. We need more information, obviously, from our first-party partners. But no announcements to make — those will come from retailers when they set their prices.”
That seems to suggest they’re leaving the door open for a price hike, but before worrying too much, it should be noted that the day after E3 2013 ended, Microsoft insisted that all games it produced for Xbox One would keep the current MRSP of $59.99. However, that assurance came as the company was still defending the console’s DRM and other user restrictions. No further word on price per game has been released since the company’s abrupt reversal of those policies.
1) A note: GAAP is short for Generally Accepted Accounting Principles. These are a standard framework for accounting set in coordination with the SEC and numerous private organizations. Non-GAAP estimates are often provided along with GAAP estimates because the company feels they more accurately reflect the true state of the company’s finances.