Electronic Arts (NASDAQ:EA) is building momentum after delivering better-than-expected results in its fiscal second quarter. The game maker reported growth in all core franchises, including EA Sports titles and The Sims 4.
More specifically, these games are bringing in new players, which is driving up spending for in-game content, or live service offerings. Here's a review of key highlights from the quarter and what to expect heading into next year.
More players, more revenue
Electronic Arts reported net bookings (a non-GAAP measure of revenue) of $1.277 billion, which was $47 million above guidance. This performance was driven by impressive 50% growth in live services year over year.
Last year, growth expectations got ahead of reality, sending the stock price down after EA reported a deceleration in live services revenue in the year-ago quarter. Live services are an area where management has invested heavily over the past few years to drive long-term growth. The 50% growth in the most recent quarter is a major improvement over the year-ago quarter's 6% growth rate. Management credited player engagement in the Ultimate Team game mode, The Sims 4, Apex Legends, and FIFA Online for the strong performance.
It's encouraging that growth in live services was driven by both sports and non-sports titles. The number of players participating in FIFA Ultimate Team increased 22% year over year. For Madden Ultimate Team, unique players were up 19%. In addition, monthly average players in The Sims 4 jumped 40% year over year.
Meanwhile, Apex Legends, a free-to-play battle royale shooter that launched in February, continues to grow in popularity. The game has reached 70 million players. The third competitive season of Apex just kicked off this month, and player activity is "significantly above" that in season two, as CEO Andrew Wilson explained, "We're continuing to bring new players into the game. Apex Legends is a major long-term franchise for us."
EA continues to expect that the combined net bookings for The Sims and Apex Legends will be between $300 million and $400 million for fiscal 2020.
Building on success
Based on the strong performance to date, management raised its outlook for the full year, which is a marked contrast from the year-ago period, when management was dialing back expectations. For fiscal 2020, guidance calls for $5.41 billion in revenue, a 9.3% year-over-year increase. Operating cash flow is expected to be $1.625 billion, an improvement over $1.547 billion in fiscal 2019.
The outlook includes the assumption that the Nov. 15 release of Star Wars Jedi: Fallen Order will sell between six million and eight million copies, but that could prove conservative. This is a huge quarter for Star Wars content, with The Mandalorian launching on Disney+ in a few weeks, and then Star Wars: The Rise of Skywalker hitting theaters in December. Those releases should drive extra interest in the Star Wars-licensed video game.
Looking further ahead, management is very optimistic as it plans the company's game release schedule for the next few years. For starters, management sees the installed base of players growing in the next console generation, which will begin next year when new game systems launch from Sony and Microsoft.
Next year, EA is looking forward to doing some innovative things with its sports titles with the new technology that the consoles will provide. It's also delaying the release of the next Battlefield game by a year to give developers time to do some new things with that franchise, which is now scheduled for release in fiscal 2022.
All told, CFO Blake Jorgensen sees another year of growth in fiscal 2021:
We're doubling down on live services combined with our core franchises. We're investing in Apex Legends as our shooter in fiscal 2021. We expect to drive growth in all of our major live services next year, including Ultimate Team, Apex Legends, FIFA Online, and The Sims. And we continue to grow our subscription business.
No doubt, the success of Apex Legends is allowing EA extra time to work on the next Battlefield game, which could make it the best version of the series yet and drive higher sales when it releases.
The stock is well off its 2018 highs, but if the company strings together more quarters like this one, this could prove a timely opportunity to buy shares.