Electronic Arts (NASDAQ:EA) recently announced surprisingly weak fiscal third-quarter results. Demand trends were so far below the video game developer's targets, in fact, that the management team lowered its expectations for growth in this fiscal year and well into the next one.
The first step in EA's rebound plan involves having a clear idea about what went wrong over the holiday quarter. To that end, management revealed more data than usual about the performances of its individual titles during the key holiday season period. Let's take a look at the biggest whiffs.
Check out the latest earnings call transcript for Electronic Arts.
The Battlefield shooter franchise is one of EA's biggest brands, with over 27 million players engaging with its titles in just the past year. Its most recent chapter, Battlefield V, missed management's mark by a wide margin last quarter by selling 7.3 million units, or about 1 million fewer than expected.
Several issues combined to produce that miss, including the fact that competition was fierce across the industry. But two main drivers stood out. First, the company's delayed release put the title up against tough price-based competition in the heated weeks leading up to Black Friday. Second, the lack of a robust Battle Royale mode made the game less attractive as gamer demand shifted further away from single-player experiences. "As a result of these decisions," CEO Andrew Wilson said in a conference call with investors, "we struggled to gain momentum and we did not meet our sales expectations."
Command & Conquer: Rivals
Mobile gaming is a major focus for the company, accounting for over 10% of sales in fiscal 2018. It has become harder to compete in the industry lately, though, and EA said its recent launch of Command & Conquer: Rivals illustrated that fact. The release failed to catch on with casual gamers last quarter despite strong branding and plenty of marketing support.
Executives said it was more challenging than expected to climb up the sales chart on mobile, and to support that claim they said their data shows that industry's top 20 titles are, on average, three years old. EA struggled a bit with other mobile titles, including Madden, so that overall digital bookings in the category were down a brutal 22%.
There have been some impressive achievements lately in the performance of FIFA, EA's dominant global soccer franchise. It was the best-selling console game in Europe last year, for example. The brand's prior iteration, FIFA 18, set sales records in 2018.
The company couldn't fully capitalize on that positive momentum in recent months. Executives said the franchise didn't live up to sales expectations in China and conversions into the FIFA 19 title have been weaker than expected. As a result, unit sales are flat overall. Management cited intense competition as a headwind, but said it is still optimistic about the franchise's long-term outlook.
EA said its understanding of these missed execution opportunities has informed some major changes to how it will operate going forward, including a new emphasis on live services and deepening engagement through multiplayer gaming. The company also created a new working group it calls a "creative council" that should help improve innovation in its key titles.
Finally, its pipeline is packed, and the latest Apex Legends launch helps show how EA can be flexible in targeting different gaming modes and monetization strategies. "The future of this industry is strong, and so is the future of Electronic Arts," Wilson summarized for investors.
That said, EA no longer believes net bookings will be roughly flat in fiscal 2019, but instead believes they'll decline. The next fiscal year is likely to be affected by these same challenges, too, as it will take time to apply these hard-won lessons to the broader portfolio.