Sports Titles To Be Major Growth Drivers In Q1 2016 Earnings For Electronic Arts

The American video game developer, Electronic Arts (NASDAQ:EA), is slated to release its first quarter fiscal 2016 earnings results on July 30. ^[1] The company has been beating the market estimates for the last couple of years, driven by the success of its sports titles. EA’s stock has more than doubled over the last 12 months. According to Wall Street estimates, EA is expected to report an EPS of $0.02 in Q1 2016. ^[2]

Electronic Arts finished the fiscal 2015 with a strong statement, as it posted a 5% year-over-year (y-o-y) jump in the Q4 revenues, with a significant 25% increase y-o-y in the digital revenues, which accounted for more than half of the total revenues. Nonetheless, 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. 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. These games kept the momentum alive in the June-ended quarter as well, and might pick up pace in the latter half of the year. ^[3]

Our $65 price estimate for Electronic Arts’ stock is 8% below the current market price.

See our complete analysis of Electronic Arts stock here

FIFA and Madden NFL: Still Leaders

EA has been riding high on title sales, with sports titles leading the race. EA’s dependence on its sports franchises, Madden NFL and FIFA, has increased for a variety of reasons 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 roughly 16.86 million units as of June 27, 2015, with Europe accounting for nearly 63% of the total sales. ^[4] FIFA sales are usually high in those years when there is a major soccer tournament, such as the World Cup or Euro Cup. Considering, there is no major soccer tournament this year, the growth in FIFA sales will be lower than FIFA sales in 2014, which witnessed the FIFA World Cup. Trefis estimates the number of FIFA units sold to increase 6% y-o-y, compared to 27% last year. Nonetheless, the soccer simulator will still remain the major cash minting title for the company, as its popularity is growing among the sports fans.

At the 2015 Electronic Entertainment Expo (E3), held at the Los Angeles Convention Center in Los Angeles, California from June 16 to June 18, EA showcased the trailer and in-game details about the upcoming FIFA 16, which will have the women’s teams for the first time in the history of the franchise. With demand for FIFA titles growing every year, we can expect FIFA 16 to further boost the revenue growth.

On the other hand, gamers are showing positive response to Madden NFL in the North America region. The title has sold close to 6 million units as of June 27, 2015, with over 85% of the sales in North America. ^[5] By the end of fiscal 2015, 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.

EA is scheduled to release this year’s edition of the title, Madden NFL 16, on August 25, 2015, whose anticipation is already running high  among the American football fans.

Need For Speed: Will It Be A Blockbuster Return?

At the E3 2015 event, EA has announced its plans to bring back 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, on November 3, 2015. 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. The re-entrance of the title will boost the company’s revenue growth in the latter half of the current fiscal.

The last edition of the franchise, Need For Speed: Rivals, sold close to 4.34 million units worldwide. ^[6] Looking at the fact that the new game has improved graphics and features, and moreover, it is coming after a one-year break, we can expect the new title to sell more than the last two editions.

EA Still Struggling In FPS Genre

Electronic Arts has been trying to enter into the first-person shooter (FPS) category for the last couple of years, with its Battlefield and Titanfall franchises. However, the dominance of Activision Blizzard’s (NASDAQ: ATVI) Call of Duty, and the strong presence of companies, such as Ubisoft and Take-Two Interactive in the FPS category, is making it difficult for EA to make its mark in this crowded market.  In March 2015, EA released the new FPS title—Battlefield: Hardline, which received tremendous response from the corresponding gamers. The game sold slightly more than 3 million units as of June 27, 2015. ^[7] The pace of this new title’s sales is higher than that of the previous Battlefield title: Battlefield 4, due to the fact that it was the only major FPS game release of the year. Moreover, the number of gamers shifting from other genres to the FPS category is increasing gradually.

The question that arises, looking at the current standing of Electronic Arts in this category, is if EA’s Battlefield and Titanfall are enough to compete with some of the best and highly popular games, such as Call of Duty, Destiny, Halo, and Far Cry? There is no word from the company regarding the next Titanfall title. Moreover, Battlefield’s popularity is not as much as the other top sellers. As a result, the only thing EA can do until its FPS franchises are among the top 10, is to increase the number of FPS titles, or to increase the pace at which it releases the next edition of the existing FPS franchises.

To summarize, EA will rely on its sports titles to drive the majority of the top-line growth of its business for the next few years. With the strong demand of its sports titles, we can expect another impressive quarter from the company.

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1. Electronic Arts, Q1 2016 results [↩]
2. The Wall Street Journal, EA analysts estimates [↩]
3. Electronic Arts, Q4 2015, earnings call transcript [↩]
4. FIFA 15 unit sales globally, VGChartz [↩]
5. Madden NFL 15 global sales, VGChartz [↩]
6. Need For Speed: Rivals, VGChartz sales [↩]
7. Battlefield: Hardline unit sales, VGChartz [↩]