While Electronic Arts (EA -0.65%) is seeing strong growth in its live services business, which includes in-game spending and subscriptions, the video game company's mobile revenue continues to tumble. In its fiscal third quarter, revenue from mobile titles fell 6% year over year and 17% on a trailing 12-month basis.
Excluding foreign currency changes, mobile revenue was up for the quarter, which ended Dec. 31. Still, it's apparent that EA's mobile gaming segment is underperforming the industry. Overall, mobile game sales increased 10% last year, according to market research firm Newzoo.
Despite that, CEO Andrew Wilson sounded upbeat on the recent earnings call. "I'm more excited now about our mobile pipeline than I have been for a number of years," he said. That optimism might have raised a few eyebrows, but during the call, Wilson also outlined three tactics and strategies the company is focusing on that could help it turn the mobile business around.
Image source: Getty Images.
1. Improve content monetization
Making money from mobile games can be tricky. The basic strategy in the industry is to release titles for free in the hope that a small percentage of users will want to upgrade how they play and spend money on in-app purchases. Some games may have short windows of popularity, but there are plenty that have staying power and become consistent cash cows for their developers.
Activision Blizzard's (ATVI) King subsidiary, the maker of Candy Crush, exemplifies how lucrative this model can be. In the third quarter, King's mobile titles generated most of Activision Blizzard's operating income.
While EA doesn't have a mega-hit like Candy Crush, management believes they can do a much better job of monetizing their catalog of mobile games. Wilson pointed out that EA's studio leadership team is working with "leaders from the broader industry" who are "changing a philosophy around" how EA creates and monetizes content.
"And you should expect that we'll continue to focus in that area and get more out of the existing mobile titles that actually performed really well in the marketplace and we maybe haven't been as focused on," Wilson said.
2. Make better games
The other key to generating more revenue from mobile is simply to produce better games. While Wilson believes the company already has some titles that can perform better, he said, "We have a number of mobile titles in development that I'm actually very excited about."
Two of those titles in development will have a soft launch in the next year, although they haven't been officially announced yet.
One upcoming release that has been confirmed is Apex Legends, a battle-royale shooter that has become quite popular on PC and console platforms. The company's plans to release more games in new regions around the world will include a mobile version of Apex for China at some point.
There is high demand for engaging shooters on mobile devices right now. Riding the same trends that lifted rivals' titles such as Fortnite and PUBG to mobile success, Activision released a mobile version of Call of Duty last fall that was downloaded over 100 million times in the first month after its release.
3. Mobile acquisitions are a possibility
Wilson also isn't ruling out possible partnerships and acquisitions to drive growth in its mobile business. EA is flush with cash -- it ended the fiscal third quarter with $5.6 billion in the bank. Plus, it generated $1.9 billion in operating cash flow over the last year.
The only problem is that there may not be an opportunity to make a big splash the way Activision Blizzard did in 2016 when it dropped $5.9 billion on King Digital Entertainment. EA could finance a similar transaction if an appropriate target appeared, but as Wilson noted, "There's not a lot of those out there as it turns out."
Sales from mobile games totaled $68 billion in 2019, according to Newzoo, making that the largest category of revenue in the video game industry. This is a market that game companies will want to focus on for growth, especially with new technologies like augmented reality (AR) emerging. If you can measure a three-dimensional object like a box with your phone, surely game studios can think of ways to integrate AR into captivating games.
Mobile revenue makes up less than 10% of EA's business, so the segment's weak performance won't be a deal-breaker for investors looking for growth. But as Wilson said, "Mobile continues to be a focus for us, and we believe there's a growth opportunity ahead."
This might be an overlooked catalyst that investors want to keep an eye on.
