Electronic Arts: High Hopes From Sports Titles To Drive Revenues

Sports game lovers gear up for yet another sports season as Electronic Arts (NASDAQ:EA) released its much awaited annual edition – Madden NFL 15- on August 26 in North America and three days later in Europe. Based on National Football League, this sports title is one of the core franchises of the company and is published by EA Sports. Madden NFL is a blockbuster release every year as it is generally released a few weeks before the start of the NFL season. The game’s core market is the U.S., as the sport is fairly popular in the country. Numerous GameStop (NYSE:GME) and Best Buy (NYSE:BBY) stores in the U.S. held midnight release of the title for gamers. The game was announced in April 2014 and its details were unveiled later in the 2014 Electronic Entertainment Expo (E3) held in June 2014.

Moreover, Electronic Arts is all set to release its money-minting franchise – FIFA 15- FIFA’s new annual version on September 23 in North America and September 25 in Europe. ^[1] The game is the most awaited title every year and is in much more demand this year due to the excitement and enthusiasm generated by the recently held Brazil FIFA World Cup. FIFA 15 will be released on all major platforms with new exciting features such as improved graphics, addition of new soccer legends in the all new ‘Concept Squad’, new stadium chants and songs, as well as addition of all 20 Premier League stadiums, requested by FIFA lovers last year.((All 20 Premier League Stadiums officially licensed for FIFA 15))

Our price estimate for the company’s stock is $36, which is in line with the market price.

See our complete analysis of Electronic Arts stock here

Madden NFL 15: Off To An Average Start

Electronic Arts is the leader in sports genre games, with FIFA and Madden NFL accounting for 67% of the total sports title sales worldwide in 2013. According to our estimates, Madden NFL franchise accounted for 7% of the company’s net revenues in 2013, with major contribution by the U.S. gamers. Within just five days of the release, Madden NFL 15 was able to outperform all other titles and topped the charts as the highest selling game in August, according to August NPD report. ^[2] The strong demand for Xbox One Madden NFL 15 bundle boosted the sales of Microsoft’s (NASDAQ:MSFT) Xbox One in August, but the game’s sale was still stronger on Sony’s PlayStation 4.

Madden NFL shows a noticeable improvement in terms of game features and details. However, it was not enough to meet the expectations of the company, as the retail sales were short by 20%, according to the investment firm Cowen & Company. ^[3] The company was expecting the digital content of the game to perform well, driven by the lack of NCAA Football title this year and strong performance of next generation consoles – Xbox One and PlayStation 4.

• In September 2013, EA Sports announced that it will not be releasing the popular college football game, NCAA Football in 2014, due to legal issues regarding the dispute over using images of college football players without reimbursing them. ^[4] EA expected the football gamers to switch to Madden NFL this year and cover up for the lost sales of NCAA football.
• Moreover, the sustained demand for next generation consoles increased the company’s hopes all the more. According to the company, more people opting for the new console systems should translate to increased sales of the titles. However, this trend is not yet evident in the market.

The weak performance by Madden NFL on last generation consoles is one of the reasons for this slump in the initial stages, which might improve as more people buy titles for their new systems. Madden NFL has always been a strong franchise and has delivered strong numbers in the past years. Although, the first week’s sales did not match the expectations, it is too early to predict the performance, as the sales might pick up in holiday season, which is the highest grossing period for the company.

We estimate the number of Madden NFL units sold in 2014 to rise by 3% year-over-year.

All Eyes On FIFA 15

FIFA has always been a highlight of the year for the company in terms of sales – the soccer franchise accounted for 27% of the company’s net revenues and 23% of the company’s gross profits in 2013. With technological advancements, improved graphics, detailed visuals and new digital content features, the demand for FIFA has increased exponentially over the last five years. The number of FIFA units sold has almost doubled from 6.4 million in 2010 to 12.45 million in 2013.

In April, EA released a special edition of its FIFA franchise – 2014 FIFA World Cup Brazil for the PlayStation 3 and Xbox 360 consoles, ahead of the mega event, the FIFA World Cup (June 12- July 13) held in Brazil this year. World Cup fever boosted the sales of FIFA 14, as well as FIFA World Cup Brazil. FIFA 14 climbed up to 5th spot in the top selling games in the month of June, while FIFA World Cup Brazil won the 12th spot. ^[5] . The company forecasts a significant jump in sales of FIFA titles as football fans and gamers all around the world eagerly wait for the new release. Sales of the annual FIFA franchise went up 25% after the last world cup in 2010. ^[6]

The Ultimate Team Mode for both the titles – FIFA and Madden NFL – has been successful, as it generated more than $380 million in fiscal year 2014. Madden Ultimate team showed a growth of 90% year-over-year, providing a boost to digital revenues. Clearly, EA is relying heavily on its sports titles and expect them to boost the top line growth of the company in the present scenario where software sales are still lagging compared to the previous year.

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1. FIFA 15 released date [↩]
2. August 2014 NPD [↩]
3. Madden NFL 15 fumbles in disappointing August debut [↩]
4. Update on NCAA college Football [↩]
5. World Cup boosts FIFA sales [↩]
6. VGChartz, 2010 Global Yearly Chart [↩]