In December, I named Electronic Arts (NASDAQ:EA) CEO Andrew Wilson the greatest tech CEO of 2014. Wilson's efforts to transform the video game publisher produced strong returns for investors, as Electronic Arts shares doubled in 2014.
The rally continues: In after-hours trading on Tuesday, Electronic Arts shares rose more than 4% following the release of its third-quarter results. Electronic Arts continues to perform at a high level, as gamers eagerly snap up its titles.
Digital continues to accelerate
On an adjusted basis, Electronic Arts generated $1.428 billion in the third quarter -- more than the $1.275 billion it had previously projected, and more than the $1.29 billion consensus analyst estimate. Nearly half of that amount -- $693 million -- was from digitally distributed content (rather than physical discs). On a trailing-12-month basis, more than 50% of Electronic Arts' revenue is now coming from digital sales.
The bulk of that digital revenue is from the sale of extra content -- primarily DLC add-ons, which give gamers additional levels, weapons, and other content for their existing games. Sales of that extra content rose 47% on an annual basis.
Sales of full-game downloads (which replace physical discs entirely) also continue to ramp up, rising 22% on an annual basis to account for about one-fifth of Electronic Arts' digital revenue. Electronic Arts' other digital sources -- mobile and subscriptions -- had less of an impact on a percentage basis but also rose, up 13% and 52%, respectively.
The strong demand for Electronic Arts' games and digital services translated into better-than-expected earnings: In the third quarter, Electronic Arts earned an adjusted $1.22 -- better than the $0.90 it had previously guided, and more than $0.92 consensus analyst estimate.
Dragon Age: Inquisition breaks records
Dragon Age: Inquisition was Electronic Arts' premier title in the fourth quarter. The role-playing game doesn't have the sort of broad-based appeal of Electronic Arts' popular Madden and Battlefield franchises, but it still managed to set records for Electronic Arts' BioWare studio. It also earned numerous Game of the Year Awards for 2014, increasing Electronic Arts' cache among core gamers.
Mobile games are seeing increased engagement
Electronic Arts is the leader in sports-based video games, with several core franchises including NHL, Madden, UFC, and FIFA. Although these franchises primarily serve console gamers, Electronic Arts has released some of them for mobile platforms.
Those mobile sports games are seeing increasing popularity: In the third quarter, monthly active players for Madden NFL Mobile and FIFA 15 Ultimate Team rose 45% on an annual basis. In total, Electronic Arts' mobile games averaged 160 million monthly active users in the third quarter.
In addition to its sports franchises, Electronic Arts has brought several of its other franchises to mobile. In December, it launched SimCity BuildIt -- a mobile adaptation of its long-running PC franchise, SimCity.
Benefiting from the new console cycle and a digital shift
Overall, the third quarter was strong for Electronic Arts, and its near-term prospects appear quite bullish. In calendar year 2014, Electronic Arts was the top publisher on both next-generation consoles -- PlayStation 4 and Xbox One -- and that could continue for some time. In March, Electronic Arts will release the next installment in its Battlefield series, and later in the year, it will launch Star Wars: Battlefront in concert with the debut of Star Wars: Episode 7.
The past 12 months have been great for Electronic Arts' shareholders, and as the current console cycle continues to ramp up, the video game publisher could continue to reward investors.
Sam Mattera has no position in any stocks mentioned but believes Titanfall was one of 2014's best games. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.