Investors had some big questions heading into Electronic Arts' (EA 0.61%) recent earnings report after weaker selling conditions and a few franchise stumbles hurt its earnings profile in fiscal 2019.
The video game developer recently eased many of those concerns. While sales fell on an annual basis for the first time in years, EA's growth sped up in the fiscal fourth quarter thanks to healthy demand in its sports brands and in the new Apex Legends franchise. Executives believe a strong content lineup, particularly within their live services platform, will return the company to growth in fiscal 2020.
CEO Andrew Wilson and his team added context to that outlook in a conference call with Wall Street analysts. Below are a few highlights from that discussion.
Image source: Getty Images.
Event-driven gaming
We significantly outperformed our expectations in Q4. This was, of course, largely driven by Apex Legends, but sports were also stronger than we had anticipated. Anthem underperformed our expectations.
-- CFO Blake Jorgensen
Apex Legends, EA's biggest swing yet in the battle royale game genre, is a breakout hit, surpassing 50 million players in just its first few months.
Stepping back, though, its live services made the difference across the portfolio last quarter. The Firestorm battle royale content release generated a 60% spike in active players for the Battlefield V title and helped it recover from a rough start. The sports franchises saw robust growth, too, leading to a 10% boost in net bookings for the broader live services segment. These wins allowed sales to rise to $1.36 billion rather than decline to $1.17 billion as executives had predicted.
Weak spots
Mobile delivered net bookings of $135 million, down 23% year on year, with declines from aging titles across our portfolio not offset by growth in our new title, Command & Conquer: Rivals.
-- Jorgensen
It wasn't all good news in this report. EA's Anthem title fell short of management's launch targets and the mobile division shrank as the developer struggled to break into the top-selling app charts. That segment saw sales crater 23% in the quarter and 13% for the full year.
Executives are still optimistic about the mobile sales channel, which is one of its most profitable. They're planning more gamer testing before global launches in the year ahead in a bid to boost the chances of new releases.
Looking ahead
Across HD platforms, mobile and PC, the global gaming audience is growing. Great games and services will continue to be at the center, and we are focused on bringing new experiences to more players on more platforms in more geographies throughout the year. The variety of new games and experiences that we're planning for players this year demonstrates the breadth and depth of our portfolio.
-- Wilson
EA's packed launch calendar should result in a return to sales growth this year as net bookings rise about 3% to $5.1 billion. The biggest expected titles include Star Wars Jedi: Fallen Order, which should sell between 6 million and 8 million units, and Need for Speed at around 4 million. Live services growth could accelerate to as much as 15%, management said, with support from a flood of content in the Apex Legends, FIFA, and The Sims franchises.
A big question going forward will be how operating and financial trends evolve around Apex Legends. The free-to-play title is unlike many of EA's other tentpole franchises, and so management says it makes sense to be conservative about its profitability.
That said, the franchise could also outperform expectations if it holds onto gamers long enough to warrant a big launch in markets like China and Korea, and the eventual addition of a mobile gaming component. Only time will tell, though, if a substantial portion of EA's new gamers will stick around in the Apex Legends base and become loyal customers.
