New Edition Of Sports Titles & Strong Digital Growth Drive Electronic Arts’ Q2 Revenues

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Electronic Arts

Electronic Arts (NASDAQ:EA) continued its streak of strong quarterly earnings, as it delivered excellent revenue figures in its second quarter report, which was released on October 28. The company reported net non-GAAP revenues of $1.22 billion, up 17% year-over-year (y-o-y) and 7% above the given guidance. [1] The company’s non-GAAP diluted EPS was $0.73, up 121% y-o-y.

The impressive quarterly performance was greatly boosted by the 3 major titles: Madden NFL 15, FIFA 15 and The Sims. Apart from these major titles, Battlefield 4, Titanfall, FIFA 14 and Plants Vs Zombies Garden Warfare performed pretty well in their respective genres. In the second quarter, gamers played EA’s online modes for more than 1.9 billion hours on the console and PC. The company accounted for nearly 14% of global video game software sales last year. [2]

Our $36.76 price estimate for Electronic Arts’ stock is 5% below the current market price.

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See our complete analysis of Electronic Arts stock here

During the second quarter, EA launched two of its highly anticipated core sports titles: Madden NFL 15 and FIFA 15. Apart from games for consoles and PC, EA’s mobile games were another highlight of the quarter. Moreover, EA’s net non-GAAP digital revenues grew 30% y-o-y to $453 million, which is 37% of the net revenues in the second quarter.

Impressive Start For EA’s Sports Titles

EA is the leader in sports genre games, with FIFA and Madden NFL accounting for 67% of the total sports title sales worldwide in 2013. Both the titles are the most popular and most widely played sports games in their respective regions. Madden NFL 15 was released in August and was one of the top selling games in September. It went off to become the most successful Madden titles in recent years, as more than 89 million online Madden 15 games were played, up 48% y-o-y. 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. [3] 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.

The annual edition of the popular soccer simulator, FIFA 15 was released in the last week of September. Within one week, the title was able to break launch records for the franchise, as the title reported nearly 50% more players online compared to its previous version. In September, Madden NFL 15 and FIFA 15 grabbed the #2 and #3 spot in the top 10 titles list in terms of units sold.

The ultimate team modes of all the major sports titles witnessed tremendous growth, with a 40% increase in the ultimate team player base over fiscal 2014. Madden NFL mobile and FIFA 15 ultimate team for mobile were also launched for the iOS and Android in the second quarter. FIFA online 3 was one of the top mid-session games by revenue this quarter, as the online games’ revenue grew 89% y-o-y.

EA’s Strong Line-up To Drive Revenues In The Coming Quarters

Apart from its core sports franchises, Electronic Arts is confident of its other catalog titles to push up the revenues in the coming quarters. The Sims, Titanfall and Battlefield 4 are some of the popular titles that have boosted the company’s net revenues in this quarter. For the next two quarters, which are generally the higher grossing period for the company, EA expects the sales of Madden and FIFA to accelerate, accounting for the majority of the company title sales. Apart from them, EA recently released its NBA LIVE 15, which is highly popular in the U.S. among basketball fans. Moreover, the company is all set for the launch of Dragon Age: Inquisition in November.

The company is trying to enter into First Person Shooter (FPS) genre with the Titanfall and Battlefield franchises. Battlefield 4 continues to attract more players with its regular content updates and extended services. The company plans to release the fifth expansion pack, Final Stand, in the third quarter. However, the release of Battlefield Hardline, which was originally targeted to launch in October, has been delayed to March 2015. EA’s exciting line up extends till the next holiday quarter, with the return of Need For Speed, Star Wars and Mass Effect franchises.

Success Of Digital Content Boosts Margins

As the gaming industry shifts towards digitalization, EA’s dependence on its premium full game downloads and extra downloadable content (DLC) increases. The company’s mobile games generated $115 million this quarter, up 11% y-o-y. Out of this, 91% revenues came from DLC and advertising. On the other hand, full game PC and console downloads generated $94 million in revenues, up 71% y-o-y. As a result, EA’s net digital revenues grew 30% to $453 million. As a result, the company’s gross margins improved 440 basis points to 66.1%, partially boosted by the launch of The Sims 4.

Looking at the success of digital content and a strong line-up of core titles, the company raised its fiscal 2015 revenue guidance from $4.1 billion to $4.175 billion.

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Notes:
  1. Electronic Arts earnings call transcript []
  2. VGChartz, 2013 Global Yearly Chart []
  3. August 2014 NPD []