EA exceeded financial expectations during the quarter ending September 30, largely thanks to ongoing success in non-traditional digital realms.
EA Q2 FY2014
Revenue of $695 million, down year-on-year.
Digital revenue of $450 million, up year-on-year.
Ultimate Team games, Plants vs Zombies 2 and Real Racing 3 cited as strong digital performers.
Year-on-year, console revenue dropped, and PC revenue increased. Mobile remained steady while handhelds nosedived.
Battlefield 4 has hit sell-in targets.
EA expects up to 10 million PS4 and Xbox One hardware sales this financial year.
Titanfall exclusive to PC, Xbox 360 and Xbox One for the life of the product – no PS4 port inbound.
Titanfall and The Sims 4 due in the last two weeks of March 2014.
The publisher reported GAAP revenue of $695 million, a drop from Q2 2012’s $711 million – probably to be expected given the console transition, which would have resulted in lower sales of cross-gen titles like Madden 25.
Backing up this speculation, its traditional revenue for the quarter was $223 million – down from $365 million one year before – while its digital revenue was $450 million, well up from 2012’s $324 million.
Distribution revenue remained static.
Chief financial officer Blake Jorgensen noted that EA is raising its non-GAAP forecasts, having had a strong quarter.
“We exceeded our revenue and EPS guidance in the second quarter through a combination of delivering on revenue, and managing our costs,” he said.
It was newly incumbent CEO Andrew Wilson’s first time in the financial chair, but he had littler to say in the financials press release beyond a comment that the publisher must remain focused.
“EA’s strong second quarter was driven by great title launches, continued digital growth, and financial discipline. While we have made good progress in the first half of the year, we remain focused on executing our FY14 plan and delivering a full slate of amazing games and services to players on current and next-generation consoles, mobile, and PC,” he said.
On a game-by-game basis, EA noted strong performance from digital titles. EA Sports’ Ultimate Team products have grown year-on-year, driving digital revenue growth.
Plants vs Zombies 2 has now been installed over 25 million times since its August launch, more than the lifetime total of the original Plants vs. Zombies.
Real Racing has been downloaded over 70 million times since releasing in February, and is averaging 18 million monthly active users.
EA has had a busy year in court so far, with two suits related to football titles – the Madden creator suit and another over NCAA player likenesses.
The publisher acknowledged “a $27 million expense related to a settlement of a litigation matter” which was not detailed, as well as $40 million “for expected litigation settlement and license expenses related to our college football business”.
EA provided a breakdown of its revenue by platform during the quarter. Consoles remain its strongest area with $309 million, but that’s down 18% year-on-year; it has trended downwards steadily for a full year now. The Xbox 360 remains its most lucrative platform.
PC remains its second most-profitable platform with $274 million, and is growing steadily – that’s a 28% increase on Q2 2012, although a drop from the immediately previous quarter.
Mobile revenue remained static year-on-year but dropped quarter-on-quarter. Handheld revenue dropped sharply.
Wilson opened his address to investors in a post-release conference call by congratulating DICE on the launch of Battlefield 4 today, describing it as “another hit title” alongside Madden, FIFA and the like.
Speaking to investors in a Q&A session, Patrick Söderlund said it’s too early to judge Battlefield 4’s success, but that early indicators – notably review scores – look good, and “from a product perspective”, EA is very happy about it. Additionally, the game has already hit its US sell-in targets. “Current-gen seems to be holding up,” Jorgenson said, and noted that pre-orders for next-gen look promising.
Asked whether Battlefield will be annualised, EA played coy, not denying it might ever happen but reaffirming its commitment to give the franchise the time it needs; Söderlund said DICE needs to ‘lick its wounds'; that’s Swedish for “enjoy the launch”, Wilson clarified. Jorgenson said EA will reveal its revenue plans for Battlefield 4 in the future, and that EA has plenty of annual titles to fill the gap left by not having a major shooter for the holiday season, including UFC and NBA Live.
In his overview of the quarter Wilson acknowledged that EA has “much of the work” for the year ahead of it thanks to the console transition, but pointed to its weighty launch line up and ongoing digital growth as indicators of future success.
“The latest indicators from Microsoft And Sony, as well as pre-order data, indicate strong demand for the new consoles,” he added, saying both platform holders had committed to ongoing support for the PS3 and Xbox 360 as well.
EA said that its forecasts for next-gen sales are quite conservative, but multiple executives reiterated that the publisher has a stronger partnerships with platform holders than ever before. EA is feeling “very bullish” and is “well ahead” on the transition; it’s “going to nail it”, and if it “squints” it can see “ten million unit sales combined” from the two new consoles. EA’s “five truly next-gen titles” will capitalise on that.
One caller questioned the likelihood of next-gen uptake. Citing his third console transition with EA, Wilson said he expects PS4 and Xbox One pricing to “come down aggressively” a few years out of launch, leading to large install bases; he also cited PS4’s much lower launch price than the PS3 as a good sign for the future.
EA noted that this is the first time two consoles have launched within weeks of each other, and that retailers are going to experience “unprecedented spend”; as a result, they’ll have plenty of cash to buy-in software stock.
Wilson acknowledged the promotions of Patrick Soderlund and Lucy Bradshaw, which incurred some restructuring costs, as well as ongoing leadership from Frank Gibeau and Peter Moore.
Moving forward, Wilson nominated three major characteristics for EA’s future under his leadership. The first is that “delivering amazing games and services must be at the core” of everything EA does; he said the publisher is “committed to strengthening the bond” with players. Secondly, Wilson said EA’s people are its greatest asset, and it must continue to nurture its talent as it brings its properties to as many platforms as possible. Finally, “making games profitably is vital to EA’s future”.
Jorgenson said add-on digital revenue had grown thanks to FIFA Ultimate Team, FIFA Online 3, and Star Wars: The Old Republic. The sunsetting of social games and the decline of Japanese mobile sales contributed to the less stellar performance in the mobile sector.
Titanfall was repeatedly mentioned as one of the highlights of the upcoming year, with EA commenting that Respawn has done an excellent job by staying on target and even “ahead of target, in some ways”.
One investor asked if Titanfall had been rushed to capitalise on the next-gen launch window, but EA said it had always been scheduled for northern spring (March, April and May), and that it saw an opportunity to move its release into FY 2014 (the first two months of calendar 2014) because other next-gen titles moved out of a busy release period. Disappointingly, Titanfall was confirmed as exclusive to PC, Xbox 360 and Xbox One for “the life of the product”.
In addition to Titanfall, EA’s next major release after the next-gen splurge is The Sims 4, which it acknowledges can “release any time”. Both titles are due in “the last part of” Q3FY14 – the final two weeks of March 2014.
The publisher is predicting GAAP net revenue of approximately $775 million for the third quarter and $3.55 billion for the financial year.