Electronic Arts (EA -0.12%) is making a play for the industry's leadership position. The video game developer's second-quarter earnings report showed accelerating growth that stacked up well against Activision Blizzard's (ATVI) more modest gains.
Critically, EA has a pipeline of content that could put it in a position to capitalize on Activision's production challenges for 2022. Let's take a closer look.
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Faster growth
The timing of new releases can make it hard to compare video game developers' sales in any given period. However, EA clearly has the stronger momentum heading into the holiday season.
Net bookings more than doubled this quarter to $1.8 billion. Activision notched just a 6% increase through late September. EA's sales are up 27% over the past full year, thanks to steadily rising engagement and audience size.
Its bigger rival is seeing softer results as compared to soaring gains in 2020. "EA delivered another strong quarter," CFO Blake Jorgensen said in a press release, "primarily driven by our EA Sports titles and Apex Legends."
Engagement and monetization
EA's subscription services, anchored by its dominant position in the sports niche through franchises like FIFA and Madden, contributed most of its growth this quarter. Gamers are also spending cash on full-game downloads and in-game purchases in casual titles such as the Star Wars and Sims mobile titles.
Wins here allowed the company to trounce management's earnings forecast. Earnings landed at $1.02 per share, compared to their August guidance calling for $0.36 per share of profit. "This was the strongest second quarter in the history of Electronic Arts," CEO Andrew Wilson said.
The biggest area where EA outshined Activision is in its outlook. While the industry leader is expecting a big holiday season tied to its launch of Call of Duty: Vanguard, the 2022 year will be another story. Management is delaying two key titles due to development challenges at its Blizzard studios, which will put a big drag on bookings next year.
EA's pipeline is much stronger. New releases in the Apex Legends and Battlefield franchises will lift results through the current quarter, while there's a flood of high-quality content on the way after that. "We're positioned for a strong holiday season," Jorgensen said, "with growth drivers in place for this year, next year, and beyond."
Taking the lead?
EA is targeting net bookings of $7.6 billion this fiscal year following its latest boost to the outlook. That's still well below the $8.7 billion that Activision expects to achieve in the 2021 fiscal year, which ends in late December. (EA's fiscal year runs through late March.)
Next year might offer EA its best shot at closing the gap in years, though, given Activision's weaker content pipeline. The most likely scenario is that Activision simply pushes some of its growth into 2023, with those title delays followed by a more normal sales cadence that year.
However, it's not out of the question for EA to pull ahead of Activision in core metrics, like audience size, in the meantime. That's not an insignificant win, as it could improve EA's market share in key niches while helping the video game company attract more industry talent. This game is getting more interesting.
