Investors were pleased with the recent earnings report from Electronic Arts (NASDAQ:EA). The fiscal third quarter, which includes the all-important holiday shopping season, showed robust demand across new and established video game franchises, with the pivot toward digital delivery continuing to lift profitability.
In a conference call with Wall Street analysts, EA executives broke down the record quarter and explained why they're projecting faster growth for the rest of fiscal 2020, and moderating gains in 2021. Let's look at some highlights from that presentation.
"Our live services are among the most popular and highest performing in the industry." – CEO Andrew Wilson
EA had several standout performers across its deep portfolio of gaming content, with eight major titles released during calendar 2019. While management said that release pace was a testament to their unique development infrastructure, they were just as pleased with the company's success capitalizing on subscription-based services and live events.
The third season of Apex Legends' competition attracted higher engagement than the second, for example, and FIFA, Madden NFL, and The Sims 4 each contributed to push digital spending up 15% to reach 77% of the broader business. "With the strength of our [intellectual property] and live services," CEO Andrew Wilson said, "we're well-positioned for growth as the audience expands and diversifies into new forms of content."
"With many promising titles in incubation at EA, we are excited by the opportunities ahead of us in the mobile market." -- CFO Blake Jorgensen
EA's releases on game consoles and PCs outperformed as a group, but its mobile division continued to struggle with declining results. Sales fell 6% in that channel, which focuses on casual games for smartphones and tablet devices.
Management noted that this drop was an improvement over the prior quarter, though, and included some licensing wins such as a new deal that's bringing Command and Conquer: Red Alert to the Chinese market.
Executives said they've got some other promising mobile titles in the works that may help it finally break into the top grossing sales charts. Yet investors will have to wait and see whether the new game releases return that segment to growth in fiscal 2021.
Looking past a transition year
"Looking forward to fiscal 2021, our goal is to continue to grow net bookings and underlying profitability, even as we invest in the new platforms. We anticipate live services to be the primary growth driver, followed by the launch of new content across a broad range of genres." – Jorgensen
The next fiscal year starts in just a few months, and investors should brace for volatility as gamers delay spending in anticipation of next-generation console releases.
Without issuing specifics, executives said they're expecting to continue growing sales and operating margins before gains accelerate in fiscal 2022, thanks to an established base of console gamers and a packed pipeline of releases that take advantage of the new hardware.
Shareholders should get more specifics on that 2021 and 2022 outlook during EA's earnings release in early May, which will also include updates to the tech stock's capital return plans, now that it has completed its two-year, $2.4 billion stock buyback program.