Has Electronic Arts’ Operating Efficiency Improved Or Faltered?

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Electronic Arts

We have measured Electronic Arts’ operating efficiency by determining how much revenues (product and services) the company generates for every dollar spent on operating activities (SG&A excluding non-cash items) and how it has trended over the years. The results of the same are a mixed-bag. From the perspective of product sales, the company’s operating efficiency has faltered over the past few years and it is expected to trend the same way in the future.

Electronic Arts operating efficiency

Money spent on operating expenses for every game unit sold is projected to increase from $22.63 in 2014 to $26.34 in 2018. Product revenue generated for every dollar spent on operating activities is expected to shrink from $2.74 to $2.53 in the same period. Slowdown in sales of titles other than Fifa and Madden, and higher marketing costs for new generation console games are responsible for the decline.

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EA product revenue chart

However, Electronic Arts’ service revenues for every dollar of operating expenses has increased in the last couple of years and we expect it to continue the same way driven by an increase in service revenue per unit sold. This is attributed to the company’s increased focus on the high-margin digital stream, higher mobile downloads, and emergence and subsequent success of next-gen consoles, that support games with downloadable content.

EA service revenue chart

Have more questions on Electronic Arts? See the links below.

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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