Electronic Arts Earnings Preview: FIFA & Madden NFL To Drive Q3 Revenues

The American top video game developer, Electronic Arts (NASDAQ:EA), is scheduled to release its third quarter earnings report for the fiscal 2015 on January 27. ^[1] The company accounted for nearly 14% of global video game software sales in 2013 and might retain its market share for the year 2014. ^[2] According to the research group NPD, the gaming industry just managed to equal 2013’s sales figures, with impressive hardware sales offsetting the dull software sales in 2014. The industry generated $3.25 billion in December 2014, down from $3.28 billion in December 2013. However, the highlight of the last year was the strong demand for consoles during the entire year that managed to overshadow the lagging software sales. In December, gamers spent $1.31 billion on hardware, down nearly 4% year-over-year (y-o-y). However, the trend continued in the software segment, as the net software sales for December 2014 reached $1.25 billion, down 2% year-over-year. ^[3] The sustained demand for new consoles: Microsoft’s Xbox One and Sony’s PlayStation 4, as well as new core title releases in the last few months resulted in a fairly strong holiday quarter in 2014. As a result, for the entire calendar year of 2014, gamers spent roughly $5.1 billion on physical hardware for video games, up more than 18% y-o-y, offsetting software sales, which were nearly $5.3 billion, down 13% y-o-y. As a result, the total revenue for the industry in the U.S. was up 1% y-o-y in 2014.

In the second quarter, the company delivered strong results, as it reported net non-GAAP revenues of $1.22 billion, up 17% year-over-year (y-o-y) and 7% above the given guidance. ^[4] 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.

Our $39 price estimate for Electronic Arts’ stock is 20% below the current market price.

See our complete analysis of Electronic Arts stock here

FIFA 15 & Madden NFL 15 Still Going Strong

Over the last decade, EA’s dependence on its sports franchises, Madden NFL and FIFA, has increased manifold. Both titles are the most popular and most widely played sports games in their respective regions. Madden NFL is the best selling sports series in the United States, whereas FIFA is the highest grossing sports title in Europe. The company released new editions of both the core sports titles last year, and since then both titles have been performing pretty well. In the latest NPD report, Madden NFL 15 retained the #3 spot in the U.S., as the most widely sold title, whereas FIFA 15 just managed to grab the #10 spot. However, according to latest U.K. rankings by Gfk chart track, FIFA 15 was ranked #2 in the UK video game standings. ^[5] The increase in sales of the sports titles will translate to better revenue growth this year, as this year’s edition costs slightly more than previous year editions due to the inclusion of ultimate team mode.

With both the titles maintaining their dominance in the two biggest markets: U.S. and Europe, Electronic Arts in set to report revenue growth in the third quarter. Moreover, the title sales accelerate in the holiday quarter, with more gamers opting for core titles.

Battlefield Hardline’s Launch Delay Might Weaken Revenue Growth

First-person shooter (FPS) is a major genre, accounting for about 14% of the video game market in 2013. ^[6] EA is trying to enter into this genre with its futuristic first-person multiplayer shooter franchises, Titanfall and Battlefield, directly in competition with Activision’s Call Of Duty franchise, the leader in this genre with nearly 50% of the total shooter game sales worldwide. Titanfall’s initial sales made the company optimistic of this franchise’s future, however its sales slowed down with the release of other major FPS games, such as Activision’s Destiny.

Moreover, in the second quarter’s earnings call, the company announced that the release of Battlefield Hardline, which was originally targeted to launch in October, has been delayed to early 2015. In the absence of Battlefield and Need For Speed, EA was left with only three major titles — FIFA, Madden NFL, and The Sims — for the holiday season. As a result, the company might face a decline in revenue growth with fewer titles as compared to other competitors, at a time when the software titles are not in much demand. However, the company has a strong lineup for the next calendar year, with the return of the Need For Speed and Mass Effect franchises.

It would be interesting to watch if the anticipated increase in sales of sports titles in the third quarter was adequate enough to offset the impact of Battlefield’s delay and the absence of Need For Speed.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

1. Electronic Arts Q3 2015 earnings conference call [↩]
2. VGChartz, 2013 Global Yearly Chart [↩]
3. NPD December 2014 report [↩]
4. Electronic Arts earnings call transcript [↩]
5. Latest UK software charts [↩]
6. VGChartz [↩]