Electronic Arts: Why FIFA Sales Growth Will Probably Slow Down This Year
One thing that keeps the soccer fans on their toes, apart from the start of the top division leagues and UEFA Champions League, is the release of Electronic Arts’ (NASDAQ:EA) annual FIFA editions. Being one of the most successful sports title brands throughout the world, the FIFA franchise, through its mass appeal and powerful game-play, has attracted millions of gamers every year. EA launched FIFA 16 in the North American continent on September 22, 2015, and is all set to release the awaited title across the European region and the rest of the world on September 24, 2015. [1]
The company has already started its 2015 holiday season campaign with the release of Madden NFL 16, the American football simulator video game, on August 25. The company’s stock has risen more than 9% since the release of Madden NFL 16. We have discussed several of the possible impacts of the game in the industry and on the company in our prior article. (See: Can Madden NFL 16 provide a blockbuster start to the 2015 holiday season) The demo for the game has already been in the market for more than 2 weeks, and is receiving rave reviews. Can FIFA 16 beat last year’s humongous demand for the franchise?
Our $76 price estimate for Electronic Arts’ stock is roughly 10% above the current market price.
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No Football Events Vs Trend Shift
FIFA is one of the money minting franchises for the company, contributing close to one-third of the company’s total revenues in 2014. Over the last decade, EA’s reliance on the franchise has increased in many ways. Every year, just before the onset of the holiday season, the company launches a better and improved version of the franchise, with some new additional and innovative features. According to our estimates, FIFA unit sales have tripled from 6.4 million units sold in 2010 to roughly 18.7 million units sold in 2014.
However, the interesting thing to note is that the sales of FIFA titles are cyclical, as the sales increase in those years coinciding with the Soccer World Cup (FIFA World Cup), or UEFA EURO Cup. One of these two events happens every alternate year, for example, in 2014, Brazil hosted the World Cup and France will be hosting the Euro Cup in 2016. Between these two events, FIFA sales have been seen to increase during those years when there is a World Cup event.
According to our estimates, FIFA sales climbed by more than 40% in 2012, driven by increased demand and excitement during the UEFA EURO 2012. Furthermore, the unit sales growth dropped down to 14% in 2013, due to the absence of any major soccer event. Although, the company managed to sell close to 14.7 million units in 2013, as more gamers were eager to buy the game to try it on the newly released next-generation consoles. In 2014, the FIFA World Cup event held in Brazil drove the FIFA unit sales by 27%. In fact, the company released a special mid-year edition of the franchise just before the event: 2014 FIFA World Cup Brazil, which further boosted the franchise’s sales. However, some of the growth was offset by the declining industry-wide software demand, as most of the gamers were focused on transitioning to new platforms and hence bought less games. That brings us to 2015, a year without any major soccer event. As a result, this factor will surely push down the unit sales growth for the franchise, or we can say, the increase in unit sales will not be as strong as it was last year.
On the other hand, the scenario in the gaming industry seems to improve in terms of software sales. Unlike last year, video game software sales for the first 8 months are keeping in pace with its year-over-year comparison, despite any big names in the industry. This indicates that unit sales per title has increased compared to last year’s figure, as more gamers have now made a shift to new generation console platforms and the transition seems to be almost over. As a result, the market is speculating that the holiday season 2015 is to be better than last year, considering that more gamers will be eager this season to buy games to try out on the new systems.
Considering both the opposing scenarios, we estimate the FIFA unit sales to increase by merely 6% to 19.8 million units this year.
As a result, according to our estimates, revenue contribution of FIFA in 2015 will drop down to 29%, whereas its contribution to net profit is estimated to drop down to 26.4% in 2015 from 30% in 2014.
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