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What Electronic Arts Wants Investors to Know

By Demitri Kalogeropoulos - May 23, 2021 at 6:00PM

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The video game giant is still targeting big growth in 2021.

It isn't time to put away those controllers just yet. Electronic Arts (EA -1.44%) recently surprised Wall Street with strong sales growth to close out its 2021 fiscal year. Video game fans continued to engage with its franchises even as social distancing relaxed in key markets like the U.S.

And management thinks the good times will last at least into fiscal 2022. In a conference call with analysts, CEO Andrew Wilson and his team explained how they beat their initial annual sales target by over $600 million. They also predicted more growth this year.

Let's look at a few highlights from that earnings call.

Two children playing console games.

Image source: Getty Images.

Meeting for a chat while playing Apex Legends

"The tremendous engagement across our leading live services is a powerful demonstration of how players are coming together and forming social networks through our experiences," Wilson said. 

Rival Activision Blizzard (ATVI -0.48%) said earlier in the month that the Call of Duty franchise again dominated the sales charts in 2020 by attracting 100 million new players into the ecosystem. But EA has its own runaway winner, too. The battle royale brand Apex Legends just passed 100 million players and approached record engagement in recent weeks.

All that success has EA predicting over $700 million in net bookings in the new fiscal year, meaning it has a good shot at becoming a $1 billion brand as early as 2022, after the company launches the mobile version of the game. "Apex Legends is one of the most successful games in the market today," Wilson said.

Sparking finances

"Underlying profit was also an all-time record, as was full-year operating cash flow of $1.93 billion," CFO Blake Jorgensen said.

EA's financial model shined as players continued shelling out for high-margin subscription services and in-game micro transactions. The subscription commitments, which EA calls "live services," are now responsible for nearly all of the company's total sales footprint.

"There couldn't be a more dramatic illustration of the way the business has evolved," Jorgensen said, "with our focus on engagement and ongoing entertainment now generating three-quarters of our net bookings." That $4.6 billion of live-services revenue, management estimated, would equate to about 130 million sales of a console game release.

Big growth ahead

"We expect fiscal 2022 net bookings to be $7.3 billion, up about 18% over fiscal 2021," Jorgensen said.

EA directed some of its surging cash flow toward several large acquisitions in late 2020, and those additional brands should help it close the sales gap with industry leader Activision Blizzard. The company is expecting major contributions from its established franchises, too, whether it's sports games, Apex Legends, or a new chapter in the Battlefield brand.

Investors weren't thrilled with that 18% forecast, but executives explained that the prediction included several conservative assumptions, including only modest growth from the Battlefield launch and no real synergies from the addition of the development resources from the Glu Mobile, Codemasters, and Metalhead acquisitions. The early impact of EA's launch of Apex Legends on mobile devices is a big question mark, too.

It seems likely that EA can grow sales by 20% or more this year even after its record 2020, assuming no major launch delays. That's a recipe for solid investor returns, and should keep shareholders happily holding the stock even as the sales increase from quarantine-driven demand lessens through the year.

Demitri Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

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Electronic Arts Inc. Stock Quote
Electronic Arts Inc.
$133.17 (-1.44%) $-1.94
Activision Blizzard, Inc. Stock Quote
Activision Blizzard, Inc.
$80.53 (-0.48%) $0.39

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