New Dragon Age & Battlefield Titles Boost Electronic Arts’ Fiscal 2015 Revenue Growth

Riding on strong demand for its sports titles, Electronic Arts (NASDAQ:EA) finished the fiscal 2015 with strong revenue figures in its Q4 earnings report released on May 5. The company’s GAAP net revenues jumped more than 5% year-over-year (y-o-y) to $1.185 billion in the fourth quarter, with 25% y-o-y increase in the digital revenues, which now account for nearly 52% of the total revenues. All the sub-segments (full game downloads, extra content, subscriptions and advertisements, as well as mobile revenues) driving the digital revenues witnessed y-o-y growth. However, the company’s Q4 non-GAAP net revenue decreased nearly 2% y-o-y to $896 million, but was still above the company’s guidance of $830 million. ^[1]

The highlight of the company’s fiscal 2015 report was the company’s non-GAAP operating margins, which were 500 basis points above the guidance at 25% given at the start of the year. EA mentioned that it will take 3 years to double the operating margins from 10% to 20%, but it took just 2 years to achieve the target. For the fiscal 2015, GAAP net revenues rose 26% y-o-y to $4.5 billion, whereas the non-GAAP net revenues rose 7% to $4.319 billion, of which the digital domain accounted for $2.23 billion. The company’s popular core franchises, such as FIFA, Madden NFL, The Sims, and Battlefield, and their respective live services, attracted the gamers and provided a boost to the revenue growth. In 2014, the company released the annual editions of its core sports titles: FIFA 15, Madden NFL 15, and NHL 15, as well as a new action role-playing game, Dragon Age: Inquisition.

Our $54 price estimate for Electronic Arts’ stock is more than 10% below the current market price.

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Core Titles Drive Top-line Growth

• FIFA 15 and Madden NFL 15

EA’s dependence on its sports franchises, Madden NFL and FIFA, has increased manifold over the last few years. Both titles are the most popular and most widely played sports games in their respective regions. According to VGChartz, FIFA 15 sold over 15.8 million units through March 21, with Sony’s PlayStation 4 & 3 leading the FIFA sales with 5.82 million and 4.2 million units, respectively. ^[2] Europe accounted for almost 60% of the FIFA 15 unit sales on PlayStation 4. In 2015, the FIFA 15 sold over 1.32 million units worldwide. The title still remains among the top five titles played in the western markets, with more than 18 million matches played per day on average in the fourth quarter.

On the other hand, America’s favorite sports title, Madden NFL, sold over 5.8 million units through March 21, with North America accounting for 85% of the total sales. ^[3] However, in 2015, the title sold over 0.4 million units, with new generation consoles leading the sales. The game-play hours for the title rose nearly 30% y-o-y. On the other hand, the Madden NFL mobile game continues to attract more players, as the game-play for the mobile rose 25% y-o-y.

The Ultimate team for all the sports titles showed impressive performance in the fiscal 2015, with Madden NFL’s Ultimate team stealing the highlight with a significant 97% improvement in the total hours played. However, the growth of the company’s revenues from extra content slowed down, due to the fact that most of the FIFA’s Ultimate team business is in Europe, where the impact of foreign exchange hampered the growth of the segment. Non-GAAP revenues from Extra content rose just 1.6% y-o-y.

Despite the slow growth, FIFA Ultimate Team grew 40%, whereas Madden NFL Ultimate Team mode showed 100% improvement. Overall, the Ultimate Team mode grew 53% y-o-y, compared to 62% growth last year.

Extra content and free-to-download segment is expected to grow 10% this year, with major focus on FIFA Online 3 and Ultimate Team modes. Later this year, the company will release annual editions of FIFA, Madden NFL, NHL, NBA Live, and Rory McIlroy PGA Tour.

Both the sports titles are the cash generating franchises of the company, and are still in strong demand among the sports game lovers. Moreover, Electronic Arts will be releasing the annual editions of both the sports titles later this year.

• Dragon Age: Inquisition & Battlefield: Hardline

A few weeks delay in the launch of Dragon Age: Inquisition didn’t hamper the sales of the title. In fact, the time spent on improving the game-play helped the company in giving a better game experience to the players. With more than 200 hours of game-play till date, the game not only won many awards, but was one of the successful releases of the company in the fiscal 2015. According to VGChartz, the title sold roughly 3.37 million units, as of March 21. ^[4] Moreover, the title’s new multiplayer DLC pack: Dragonslayer, was released on May 5, and this might attract more customers, engaging them in more game-play hours.

On the other hand, Battlefield: Hardline, the only major launch by EA in 2015 till now, has been getting tremendous response by the gamers. The title features new modes of game-play, which are different from other traditional Battlefield titles, as the new game focuses on police, heists, and war on crimes, and not the usual military settings. The company’s Q4 was primarily driven by this title, which led to a non-GAAP gross margin of 75.4%, 140 basis points above the guidance. According to VGChartz, the title has sold close to 1.43 million units in the first 4-5 days, with new generation consoles (PlayStation 4 and Xbox One) leading the race. ^[5]

The company believes that these two titles will continue to generate revenue from product sales, as well as the live services, and might offset the decline in sales of last year’s titles, such as Titanfall and Battlefield 4.

New Releases Lined Up For This Year

• Star Wars Battlefront

Star Wars Battlefront, an upcoming action first player or third player game, and third main entry in the series, is scheduled to be released in November 2015 in North America and Europe on all the major console platforms, as one of the licensed IP (Intellectual Property) for EA. Being a Disney franchise, EA will have to pay a royalty fee to Disney. The company also announced the release date for its first downloadable content, Battle of Jakku. ^[6] The title’s trailer has been highly popular among the core gamers, with 29 million views across all the social platforms, indicating the excitement among the players for this game.

The company expects the non-GAAP revenue to increase approximately 8% to $4.65 billion for the fiscal 2016. EA’s CFO Blake Jorgensen mentioned that the company expects the title to sell 9-10 million units by the end of the fiscal 2016.

• Need For Speed

EA has announced its intent to add another edition to the all-time famous racing franchise: Need For Speed in the fiscal 2016. This game will be launched both for the consoles and the mobile devices. Electronic Arts broke the annual trend of 13 consecutive years, when the company decided not to release any Need For Speed title in fiscal 2015. This disappointed many racing game lovers, as well as affected the company’s revenue growth in the holiday season. The re-entrance of the title will boost the company’s revenue growth in the latter half of the current fiscal.

• Other Games

Among others, the popular games that are confirmed to hit the market this year include a new edition of Plants and Zombies, Mirror’s Edge, and Minions Paradise. After the success of Plants and Zombies Garden Warfare, which sold close to 2.11 million units as of March 21, the company is all set to bring out a new title for this franchise, with better console experience. Moreover, on April 7, EA, Illumination Entertainment, and Universal Partnerships & Licensing announced a new multi-tile deal to bring Minions and other characters from Illumination films upcoming movie to life in all-new mobile games. ^[7] Lastly, the sequel to 2008’s Mirror’s Edge is all set to be released in the spring of 2016 by the name Mirror’s Edge 2.

Electronic Arts has a lot of exciting games to be launched this fiscal year, apart from the annual editions of sports titles. The interesting fact is that the company is slowly tapping into the First-Person Shooter (FPS) category with innovative titles, in direct competition with Activision Blizzard’s (NASDAQ: ATVI) famous Call of Duty franchise. More information will be released by the company in the annual Electronic Entertainment Expo, to be held in June 2015.

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1. Electronic Arts, Q4 2015, earnings call transcript [↩]
2. FIFA 15 unit sales globally, VGChartz [↩]
3. Madden NFL 15 global sales, VGChartz [↩]
4. Dragon Age: Inquisition, VGChartz [↩]
5. Battlefield: Hardline, VGChartz [↩]
6. How to get the Star Wars Battlefront Battle of Jakku DLC [↩]
7. EA, Illumination Entertainment, and Universal Partnerships & Licensing announce multi-title mobile game collaboration [↩]