EA’s Q4 Earnings Report: Company Still Kicking Ass
Did you assume EA is suffering after recent news of massive layoffs and the rumored closure of some divisions? Think again.
During today’s quarterly earnings report investor call (summarized in this press release), the company, represented by Chief Operating Officer Peter Moore, EA Labels President Frank Gibeau, Chief Financial Officer Blake Jorgensen and acting Chief Executive Officer Larry Probst, revealed that despite a series of notorious setbacks, the news is almost unilaterally good. In short, while it experienced a slight decline in annual revenues compared to the previous year, EA is still positively swimming in cash, having made $1.04 billion for the final quarter of fiscal year 2013, and nearly $4 billion for the full year (April 1, 2012 – March 31, 2013).
- Star Wars games are in development, but none are planned for fiscal year 2014.
- EA revealed all but one upcoming title for the current fiscal year: it seems likely it’s Dragon Age 3.
- Improvements and new features coming to Origin might be rolled out at E3; we may also see game announcements for Fiscal Year 2015.
- $25 million in severance paid out in this quarter, layoffs of 10 percent of EA staff confirmed.
- Star Wars: The Old Republic’s transition to F2P has been a success, with improved revenues and users.
- EA’s unannounced new Star Wars games (and everything else the company has in development) will use the Frostbite 3 engine.
- Dead Space 3 and Crysis 3 both underperformed.
- After the launch debacle, SimCity performed nicely, and EA claims they learned their lesson.
- CEO search is on-going, with both external and internal candidates being interviewed.
EA Succeeds In The Digital Space
What seemed at first like a cheap attempt to chase after Activision’s Call of Duty: Elite service has paid off handsomely for EA, as Battlefield Premium is confirmed to be a solid moneymaker for the publisher. The service brought in $120 million in revenues during the fourth quarter of fiscal year 2013 and saw 3.5 million new subscriptions. EA Sports is also kicking ass, as FIFA 13 has enjoyed sales exceeding FIFA 12 by 30 percent, with 14.5 million units; digital sales of FIFA 13 generated more than $200 million. Further, SimCity sold 1.5 million units by the end of March, with more than 50 percent purchased as digital downloads, which earn EA more money per unit than physical packages.
During the call, Gibeau directly addressed the SimCity launch debacle, in which players were unable to access the game because of its always-on Internet requirement. Calling SimCity “a great game that has recovered from a challenging launch,” he attributed the problems to EA’s failure to anticipate the demand for the game. Still, sales for the game exceeded expectations. “So far we are ahead of forecasts, with more than 1.5 million units sold,” Gibeau said, vowing that EA has learned its lesson and that “this will not happen again.”
EA also claimed 47 million Origin installs, though 20 million of them are mobile. Downloadable and extra content sales saw an increase overall from the previous year, thanks large to Battlefield 3. All of this no doubt makes EA’s increasing emphasis on online gaming seem like far more of a good bet for the company, messes like the SimCity launch aside, and EA expects to see strong digital download sales with this year’s release of Battlefield 4 and The Sims 4. The company expects digital revenues in fiscal year 2014 will be 43 percent of total revenue. It also plans a “greater emphasis on mobile at the expense of social games,” with 15 new mobile titles to be released in fiscal year 2014.
Star Wars, And Fewer Releases
EA said plans to release 11 core titles, those appearing on consoles and PC, during the current fiscal year, compared to 13 core titles released in FY13. The games confirmed today were primarily licensed titles and sequels, including new entries in the Madden and FIFA franchises, a new FIFA Manager, and updates to NBA Live, NCAA Football and NHL. Also on the docket are Battlefield 4 and The Sims 4, as well as Insomniac Games’ Fuse and the upcoming Command & Conquer: Generals title, but that leaves an 11th title that wasn’t mentioned by name during the call.
Also notably absent from the call was any mention of Dragon Age 3. This is of interest because it was confirmed today that EA plans to hold a DA3 presentation this June at E3 2013. It’s difficult to draw definite conclusions, but this would seem to indicate that DA3 is probably due out this current fiscal year, which stretches until March 31, 2014.
EA repeatedly noted the console transition as a reason for the decreased number of planned games during fiscal year 2014, and suggested there will be an increase in the next fiscal year, after the transition has fully taken off.
Naturally, the publisher crowed about the news that it has secured exclusive rights to develop Star Wars games. Though he would not release further details, Gibeau promised that “some of our most renowned and innovative creative teams are working on ideas,” adding that “the new games may borrow from films but will be entirely new stories and new gameplay. Powering it all will be our Frostbite 3 engine.”
However, it was noted during the call that EA is “not planning on shipping a (Star Wars) title in FY14″.
As reported yesterday, DICE and Visceral are confirmed developers of new Star Wars titles, and are joining BioWare in working in the franchise universe. EA’s references to BioWare as it relates to Star Wars continue to focus on The Old Republic, so it’s still not clear if the RPG developer is working on anything new in the Star Wars universe.
The Old Republic, incidentally, is doing well. Monthly average revenue has “more than doubled” since the transition, with more than 1.7 million new players added after the game went free-to-play. Not only is the free-to-play transition a success, but the subscriber model remains a steady earner, with a total 500,000 TOR subscribers currently, EA stated.
One of the first things we thought of in the wake of the Star Wars announcement is whether EA is planning to de-emphasize developing original intellectual property in favor of licensed titles. According to Moore, “As it relates to our overall portfolio, [Star Wars] is complimentary” to EA’s original IP production; he promised that “wholly owned IP is still the center of our portfolio.”
Much Success in Spite of Setbacks
Not everything EA touched in FY13 turned to gold. It was confirmed that Dead Space 3 and Crysis 3 both “underperformed,” though it was not stated by how much. In addition, EA stated it had paid out $25 million in severance, an amount driven primarily by the recent layoffs which, EA confirmed, amount to 10% of their workforce. EA also acknowledged it expects somewhat flat earnings related to changing tastes, and the coming console transition. However, EA was still able to boast that its successes during FY13 have made it the number one publisher of video games in the Western Market.
EA ended the quarter having earned a healthy $1.3 billion in net revenues, a slight drop from last year’s $1.4 billion. In fiscal year 2013, the company expects to have earned around $3.5 billion in GAAP1 net revenue after certain expenses, such as 8 million for “restructuring,” are counted, compared to the previous year’s $4.1 billion. Non-GAAP revenues for the fiscal year are expected to be $4 billion.
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.