Electronic Arts (EA) 2018-19 Results Fall but a Planned Record Year Ahead
It was only recently we saw that Electronic Arts (NASDAQ:EA) were saying how the current year had been challenging for the publisher. Following their Q3 results there seemed to have been a recovery in the share price on the back of Apex Legends. However, there were still over three hundred people laid off in job cuts. Despite the struggling of the current year, the final quarter has ended reasonably well with predictions for a record-breaking year ahead.
As reported in their recent financial results, during the current year Electronic Arts brought in total revenues of $4.95 billion, bringing in total operating income of $996 million. The year, in general, proved to be a difficult one for the company, with them suffering from a large amount of consumer backlash - particularly linked to large titles like Star Wars: Battlefront II, as well as the poor reception of titles like Anthem.
Edit: This previous paragraph was edited to clarify a difficult year, particularly with consumer backlash, where it previously looked as though the company was blaming consumers.
However, this doesn't mean there weren't any positives. In particular, came the hugely positive reception of Apex Legends. As a result of the early surge from the free to play title, EA shares soared following their initial fall after the Q3 results. It's the draw of titles like Apex Legends that could truly set EA up for a positive current year, as player numbers have increased significantly.
Andrew Wilson, the CEO, had this to say on the matter:
Overall, our player base grew to more than 500 million active player accounts in FY19. This was driven by engagement in our top franchises and live services on major platforms, as well as the introduction of new IP including the free-to-play game Apex Legends that helped us reach new audiences around the world.
An interesting point made later on is the success of Apex Legends in drawing new players. This was covered in the statement "It has also helped us tap into new player audiences, as nearly 30% of Apex Legends players are new to EA".
Electronic Arts: A Year in Review
What EA has noted during the current year is an uptick in digital bookings across the board. Even this, despite overall growth, has seen mixed results both. Across both the year and quarter digital bookings have fallen for mobile. Countering this is growth both for PC & Other, as well as consoles.
Digital Bookings now account for 75% of the companies total revenue over the financial year, a raise from the previous years 68%. Also, only taking into account the PlayStation 4 and Xbox One, digital accounted for 49% of game sales, further highlighting the move to digital from physical. Though the positives do show that growth for the quarter was up 14% year on year, with a 5% annual growth.
Breaking down, you see where exactly the bookings came from. Mobile is the worse of the areas where the only positive was Command & Conquer: Rivals, which performed well but failed to offset the declining bookings from ageing titles. Live services, the growing focus of the industry at large, is where the bulk of bookings came from. In the quarter alone they accounted for $845m, primarily driven by Apex Legends but also with strong figures from FIFA and Madden.
Also under live services comes EA Access, the subscription service available for the PC and Xbox One. This currently sits at 3.5 million subscribers, with strong hopes for future growth as the company will be rolling it out for the PlayStation 4 this year.
The current form of a number of Live Service titles is not without risk, however. Particularly this applies to the range of 'Ultimate Team' modes featured in FIFA, Madden, UFC and NBA Live. These modes have come under scrutiny throughout the year as a result of them selling in-game loot boxes for real currency, something that is thought of as gambling by some consumers and also certain countries.
Planning for a Record-Breaking Year
How this will continue remains to be seen, particularly as more countries are looking at Loot Boxes with the possibility of regulations. Despite this knowledge, Electronic Arts are predicting a record-breaking current financial year with expected revenues of $5.375 billion.
This growth is expected through the growth of full title sales, live services sales as well as the boost in subscriptions as EA Access moves to the PlayStation 4. With live services in particular, the company is very hopeful for the launch of Apex Legends on both mobile devices and in China, though the move to China is currently in negotiations. The move of Apex Legends to mobile should, in particular, boost bookings in that area. Mobile isn't expected to grow until the following financial year though, with ageing titles expected to fall further.
As for full titles, the company has the usual range of sports titles, with FIFA expected to perform strongly. For other titles, the company will launch Star Wars Jedi Fallen Order with sales expected to be between six to eight million units. A further Need for Speed title will be launched, with sales expectations of four million units and a Plants vs Zombies shooter is expected to sell a little over one million units.
Expectations for a stronger year are likely well founded, particularly with the lineup of upcoming titles and the continued popularity of Apex Legends. However, expectations of sales figures for other core titles may be on the high mark, particularly after the poor launches of current titles by Electronic Arts. One major area that could benefit the company if the aforementioned expansion of EA Access. Should that draw in more users to EA's roster, particularly those with in-game microtransactions, live service revenue could see a decent boost.