Shares of Electronic Arts (NASDAQ:EA) initially rose in after-hours trading on Tuesday October 28, 2014 following an earnings report that far exceeded the company's guidance. The video game publisher's business appears to be firing on all cylinders, as eager gamers scoop up its latest digital and disc-based offerings.
During its second quarter conference call, Electronic Arts' management expanded on a number of factors facing the company's businesses, and offered some guidance on its future plans.
Full game downloads are increasing in popularity
Historically, the bulk of Electronic Arts' revenue has come from the sale of disc-based games. But digital sales, which carry higher margins, have steadily grown in recent quarters, and now represent nearly 40% of Electronic Arts' adjusted net revenue.
Electronic Arts' digital revenue comes from many sources -- including DLC add-ons, in-game microtransactions, and mobile platforms. However, the percentage of full-game downloads is steadily rising, and Electronic Arts' COO, Peter Moore, believes this will increase meaningfully over time.
"It varies from genre to geography, but right now, with the increased adoption of [the Xbox One and PlayStation 4], we're seeing anywhere between 10% and 15% of our net sales ... [are] full game download, and as we get into the holiday and beyond, we can only imagine that is going to increase."
More Battlefield is coming
Electronic Arts' premiere first-person shooter franchise, Battlefield, did not receive an installment this year. Battlefield: Hardline had been expected to launch in time for the holiday, but last quarter, the company announced that it would delay the game. News of the delay contributed to a sell-off in Electronic Arts' shares, as the franchise remains vitally important to the company's future.
During the conference call, Electronic Arts' CEO Andrew Wilson offered up a release date for Battlefield: Hardline, and gave a timetable for its successor.
"On March 17, 2015 in North America and a few days later in Europe, we will launch Battlefield: Hardline ... Following this launch, our next Battlefield experience is planned for ... the third quarter of fiscal-year 2017 (holiday 2017)."
Ultimate Team is giving its sports games staying power
In 2009, Electronic Arts added the "Ultimate Team" mode to FIFA. Since then, the company has expanded Ultimate Team to the majority of its sports franchises, including both Madden and NHL. It's proven to be a hit with players, and it's also been a financial success.
In Ultimate Team, gamers play matches with teams composed of players collected from digital card packs. These packs are purchased with digital coins, which can be earned by playing the game, but can also be purchased from Electronic Arts itself. The sale of these coins generates additional revenue for Electronic Arts, but also, according to CFO Blake Jorgensen, keeps players engaged.
"This year we saw Madden [engagement], primarily due to Ultimate Team, all the way up until we shipped the new Madden. We saw big spikes around the [NFL] draft in May and we continued to see gameplay even through the summer, as people were engaging with the beauty of the Ultimate Team concept."
Star Wars games are in the pipeline
Beyond Battlefield: Hardline, Electronic Arts declined to give much insight into its long-term product pipeline. However, Jorgensen did suggest that it was planning future Star Wars games to coincide with the upcoming trilogy.
"If you go back to the original announcement when we struck the deal with Disney, it's clearly a multi-year franchise. Disney is looking for us to help support the broad effort of bringing back the Star Wars franchise, and it's across mobile, social, tablets, online, consoles -- across all venues. So you can imagine that we're going to look for many ways to leverage the franchise and help that franchise grow over time."
EA Access is surpassing their expectations
Early in the quarter, Electronic Arts launched a new subscription service, EA Access. Exclusive to the Xbox One, EA Access allows gamers to pay a flat monthly (or annual) fee to access a catalogue of older Electronic Arts' titles. Unfortunately, Electronic Arts declined to give exact figures, but suggested that the service was exceeding its expectations. Moore explained what the company gains from EA Access subscribers beyond the relatively modest fee.
"We're seeing both empirical and anecdotal data that people now who are members of Access ... who've said that ordinarily they wouldn't have gone out and bought [games like FIFA and Madden] are now experiencing them and enjoying them ... Our belief is that the next time around when the games are launched, they will actually buy them. It's turning into an incredible sampling program for us if you will."
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