Digital Segment Leads Electronic Arts’ Revenue Growth In Q1 2016
Electronic Arts (NASDAQ:EA) is off to a flying start in its fiscal 2016, as the company reported $0.15 in EPS in Q1 2016, beating the market estimates by $0.12. EA’s sports title’s category, which includes FIFA 15, Madden NFL 15, NHL, and UFC; as well as other games, such as Battlefield Hardline and The Sims 4, helped the company in engaging more gamers around the world, effectively leading to more game-play hours and better revenue growth. The company non-GAAP net revenue was $693 million for the second quarter, which was $53 million above the company’s guidance, but was 11% lower than that in Q1 2015, due to tough comparison with last year’s quarter, which witnessed an increase in sales due to gamers buying titles for their new consoles. Moreover, last year Electronic Arts launched Titanfall, FIFA World Cup 2014, and UFC, compared to this year’s Q1 quarter when there was only Battlefield Hardline. [1]
Our $54 price estimate for Electronic Arts’ stock is more than 20% below the current market price.
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At the 2015 Electronic Entertainment Expo (E3), held at the Los Angeles Convention Center in Los Angeles, California from June 16 to June 18, Electronic Arts showcased 15 new games, and got overwhelming response from the respective gamers. Games, such as Star Wars Battlefront, Mass Effect: Andromeda, Plants Vs Zombies Garden Warfare 2, Mirror’s Edge Catalyst, and Need For Speed were the highlights of EA’s presentation. Moreover, with the continued strength of Xbox One and PlayStation 4, more gamers were eager to have a look at the upcoming games at the event.
Excitement High For New Editions Of Sports Titles
FIFA 15 and Madden NFL 15 are the most popular sports titles in their respective geographical regions, and still continue to contribute heavily to the company’s overall revenue growth. According to VGChartz, FIFA 15 sold over 16.86 million units through June 27, 2015. [2] Trefis estimates the number of FIFA units sold to increase 6% y-o-y, compared to 27% last year, due to the absence of any major soccer tournament this year. Nonetheless, it was still the major cash minting title for the company in the second quarter, as its popularity is enormous among the sports fans.
On the other hand, Madden NFL continues to drive revenue growth in the North American region, with close to 6 million unit sales since its launch. [3]
EA is all set to release this year’s edition of the sports titles in the second quarter of the fiscal 2016, with FIFA 16 coming out in September 2015 and Madden NFL 16 in August 2015. Apart from these major franchises, NHL 16 and NBA Live 16 are a few other titles to launch in the market. Anticipations are already high among the sports fans.
Digital Growth: Future Of The Company
EA’s non-GAAP digital revenues rose 10% year-over-year to $482 million in the June-ended quarter, accounting for 76% of the total revenues. This high percentage of contribution indicates the shift of gamers’ interest to online gaming and downloadable content. Battlefield 4 and Battlefield Hardline’s 170 million of online game-play hours, growth of The Sims 4 community, and an 85% year-over-year (y-o-y) increase in gameplay hours of The Sims FreePlay were a few of the factors resulting in such high digital growth. Apart from this, Ultimate Team modes further boosted the category’s performance, with over 2 million players per day in the first quarter, up 20% y-o-y. Total Ultimate Team was up 3% y-o-y in constant currency. Extra content and freemium contributed $255 million, up 21% y-o-y, with FIFA Online 3 driving the majority of this growth. Furthermore, EA Access, Origin, and Xfinity Games beta are engaging more gamers day by day, generating incremental revenues for the company.
Digital extra content and advertising was up 11% y-o-y to $115 million, whereas premium mobile full-game downloads revenue declined 56% y-o-y. The company expects the digital downloads as a percentage of full-game sales to further increase in the coming quarters.
Gamers Await Need For Speed
Need For Speed is all set to make a comeback this year. EA announced its plan to bring back this all-time popular racing franchise. The game will be launched both for the consoles and the mobile devices, on November 3, 2015. The incremental revenues from this additional franchise will certainly boost the company’s revenue growth in the holiday season of 2015. (See: Sports Titles to be major growth drivers in Q1 2016 earnings for Electronic Arts)
Older versions of Need For Speed sold 4-5 million units on average, except Need For Speed:Hot Pursuit, which was a blockbuster hit. Considering the fact that this new title is coming after a one-year gap and its popularity is high among the racing fans, we can expect this year’s title to excel as well.
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