EA posted a loss and decreased revenue in Q2 FY2013, which CEO John Riccitiello blamed largely on disappointing sales of Medal of Honor: Warfighter.
EA Q2 At A Glance
EA beat Wall Street expectations, but posted a loss of $381 million, a YOY decrease, and cut its projections for the full financial year.
Digital revenues increased to $324 million, physical fell to $365 million.
Sports titles were the highlight; FIFA 13 in particular managed 7.4 million sales in just four weeks.
Medal of Honor: Warfighter has not met expectations.
Battlefield 3 remains a strong catalog performer and digital driver. 2 million Premium subscriptions have been sold.
EA posted total quarterly net revenues of $711 million, down from $715 million in the same quarter of 2011. Although these revenues beat Wall Street expectations, it resulted in a net loss of $381 million, a further drop on the $340 million loss of last year.
The publisher noted that this revenue split in favour of digital; digital net revenue was $324 million, up from $234 million in the same quarter of 2011, while publishing packaged goods brought in $365 million, down from $450 million. Mobile net revenue was $75 million, up from $55 million in the same quarter of 2011, but monthly average users in social games fell to 42 million from 101 million. On the bright side, registered users increased to 250 million from 140 million. FIFA, Bejeweled and The Simpsons: Tapped Out were key drivers in digital.
Distribution revenue was down; EA noted that it is ended a number of historical distribution channels including Rock Band.
EA lowered its expectations for the next quarter and full financial year, which it attributred to the end of the console cycle.
Talk the Talk
Speaking to investors in a post-release call, Riccitiello emphasised EA’s “strong performance” during the last quarter “despite a significant headwind from the declining packaged good channel”.
EA highlighted excellent sales of its sports titles, consistent success on mobile and tablets, and continuing performance of The Simpsons Tapped Out as the positive notes of the quarter.
But after noting that Need for Speed: Most Wanted released this week and looks good so far, Riccitiello went on to say that Medal of Honor: Warfighter’s launch is “coming in below expectations”.
The executive excused this arguable failing by saying that while digital is “surging” and mobile is “growing”, social and packaged goods are slowing down.
Of the former no much was said, but Riccitiello calmed investor fears by noting that a reduction in triple A sales is “typical for console games this late in the cycle”.
“EA doesn’t win every innings, but we put a lot of runs on the scoreboard.”
He said EA has “more big franchises than any other publisher, and most of these are doing very well”, and that “soft” results are “mostly due to Medal of Honor”.
Riccitiello ended his presentation by re-iterating EA’s three-tiered strategy, which focuses on nurturing brands, investing in talent, and pushing for digital.
Of all publishers in the west, “EA is currently tied for digital revenue, averaging annual growth of nearly 40%,” Riccitiello noted.
The industry is in a “volatile period of change” and “awaiting catalysts” for further transformation, he noted.
“EA doesn’t win every innings, but we put a lot of runs on the scoreboard,” he added.
Discussing the future with investors, EA refused to comment on next generation hardware and timelines, saying information needs to come from platform holders first. It also demurred on discussing Star Wars: The Old Republic’s upcoming free-to-play option, noting only that it remains satisfied with the health of the subscription package.
EA had plenty to boast about this quarter, noting that it was “the number one publisher in the western world in calendar year 2012 to date, with five of the top seven titles”.
Sports and digital were definitely the publisher’s top two pillars. FIFA 13 and Madden NFL 13 debuted as the two top-selling titles in September in the west, and FIFA 13 sold through 7.4 million units, excluding mobile downloads, in its first four weeks to become the biggest sports launch of all-time. FIFA digital net revenue reached over $115 million in the first half of FY2013. Madden NFL 13 saw close to a 30% year-on-year increase in total online game sessions, with units sold increased by 9% over Madden NFL 12.
Meanwhile, Battlefield 3 Premium service has sold over 2 million subscriptions to date, and free-to-play title The Simpsons: Tapped Out has been one of the top grossing iOS game for the past four weeks, with up to 2.8 million daily active users. EA boasts a 60% year-on-year digital revenue increase for a record $1.44 billion non-GAAP total in the trailing 12 months. Origin now has 30 million users, including 13 million mobile users, and has signed up 71 indie developers.
Even EA’s back catalog is doing well; Battlefield 3 has sold over 17 million copies, and along with FIFA 12, has generated 4 million sales in the last six months.
“On the strength of our digital extensions, FIFA and Battlefield are the two biggest revenue events in our company’s history. Both are well on their way to becoming billion dollar annual franchises,” EA President Frank Gibeau said.
“Our internal assessment and mock review indicate the game is better than the scores. The game will find an audience.”
Low notes and upcoming slate
Speaking to investors, EA executives said there were two definite negative moments during this quarter. The first was Medal of Honor: Warfighter. Although no figures were given, EA is clearly disappointed in the shooter’s early performance despite a strong chart performance in the UK.
“Our internal assessment and mock review indicate the game is better than the scores,” Gibeau said, adding that EA believes “the game will find an audience” over time.
Investor questions were aggressive on the topic of why Warfighter had not met expectations, but Gibeau defended the shooter and the publisher’s reputation, saying that when “when you look at the broader portfolio” EA has a strong profile for quality.
He said “no company has improved quality” over the past few years the way EA has, particularly with Madden and FIFA, and the performance of Battlefield 3.
“We take quality very seriously; we’re a hit-driven business,” Gibeau said.
Meanwhile, NBA Live’s cancellation was the second major unhappy note. EA said it judges its sports games against each other, and that NBA Live was cancelled because it “did not meet that test”. “We will publish a basketball game when we can match the quality of games like FIFA, Madden NFL,” and other EA Sports titles, Gibeau said.
Moving onto happier things, Gibeau outlined EA’s known upcoming release slate, particularly highlighting Dead Space 3, Sim City and Crysis 3.