Is Electronics Arts Pooling Its Money Into R&D Effectively?

+10.21%
Upside
132
Market
146
Trefis
EA: Electronic Arts logo
EA
Electronic Arts

Money that Electronic Arts pours into research and development for churning out new games and expansions plays a crucial role in governing the company’s sales. Ideally, the impact of the aforementioned investment should be a consistent improvement in the company’s overall revenues relative to its investments in R&D. This is exactly what Electronic Arts has exhibited over the past four years. Despite the need for higher investments in the development of games for the eighth generation consoles, the company has managed to notably increase its sales for every dollar spent in R&D.

EA R&D

While customers usually follow a franchise once they develop a solid liking for its games, their allegiances are prone to changes during the console refreshing cycle as other developers look to capitalize on the transition period. To this end, long standing franchises require fresh content/expansion/features for their games, so as to keep the customer base loyal. This results in an increase in the R&D expenses, which should ultimately lead to strong sales of new content and games.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Electronic Arts

 

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