When Electronic Arts (NASDAQ:EA) turns in its next earnings report (likely late next month) the performance of its recently released first-person shooter, Star Wars: Battlefront, will take center stage. The game, from Electronic Arts' acclaimed DICE studio, has garnered mixed reviews and has faced tough competition, going up against Activision-Blizzard's latest Call of Duty installment.
There's been some conflicting reports about Battlefront's performance in recent weeks, but management comments suggest that it sold at least as well as expected.
Battlefront is doing just fine
Earlier this month, at Credit Suisse's TMT conference, Electronic Arts COO Peter Moore reaffirmed the company's guidance -- that Battlefront would sell 13 million units over the course of the company's fiscal year (which ends in March). Moore declared definitively that "there is no weakness that is perceptible yet in the title," and went on to color his comments, remarking that "based on where we think this title is, and based on the marketing beats ahead of us (in particular, the [launch of Star Wars: The Force Awakens]) over the next two weeks, we feel very comfortable we're going to hit the guidance that we've given."
Moore's comments were in direct response to some remarks GameStop's (NYSE:GME) management had made on its quarterly earnings call in November. GameStop is the largest dedicated retailer of video games in the U.S., so any trends that it sees can provide insight into the performance of major video game publishers.
During that call, GameStop's own COO, Tony Bartel, said that "Star Wars: Battlefront fell short of our expectations." Later in the call he clarified his remarks, stating that "we had high expectations that diminished somewhat as it got closer, and then it failed to hit those lowered expectations."
Battlefront was only the third-best selling game in the U.S. during the month of November, according to research firm NPD. Call of Duty: Black Ops III outsold it, as did the critically acclaimed RPG Fallout 4. Third place is far from a poor performance, but it is a bit disappointing for a game that was so strongly anticipated.
Not taking digital into account
Of course, there's a major problem with NPD's numbers and with GameStop's results -- they don't take full-game downloads into account. NPD only tracks physical game discs sold at retail. GameStop, while it does offer full-game downloads, probably doesn't sell very many of them (assuming it sells any at all). Gamers who chose to purchase Battlefront digitally, directly through their consoles' dedicated storefronts, won't show up in either set of data. Indeed, in a blog post written earlier this month, Electronic Arts stated that the game was the "largest digital launch" in the company's history.
Among major publishers, Electronic Arts has been the most aggressive proponent of full-game downloads. Last year, the company's CFO, Blake Jorgensen, stated that the publisher hopes to eventually derive almost all of its revenue from digital channels. It's rolled out innovative programs, like EA Access, that encourage gamers to buy its titles digitally (EA Access subscribers receive a 10% discount on digital purchases).
Jorgensen has also been a critic of NPD. In an earnings call last January, he urged analysts not to take its findings too seriously. "Be really careful using NPD data -- it's becoming less and less valuable as more and more of [our] business is going digital...It really underestimates the strength of our business," he said.
Looking ahead to 2017
Although Battlefront is only one title, and its direct effect will be limited to just a few quarters, its performance could hint at some longer-term trends. Electronic Arts' Star Wars deal isn't limited to Battlefront -- the company intends to release a wide variety of other Star Wars-themed games in the coming years. If Battlefront sold poorly, it could suggest that gamers just aren't particularly interested in Star Wars.
But the opposite could also be true, and at the same time, Electronic Arts' slate of upcoming games is diverse. "It's a little bit of an embarrassment of riches," said Moore, characterizing Electronic Arts' forthcoming titles. "We've got some of our core franchises [coming in fiscal year 2017, including] a new Battlefield...a new Mass Effect...[and] Mirror's Edge."
Electronic Arts' stock has been a winner for investors, rising nearly 400% over the last three years. Fears that Battlefront fell short of expectations have weighed on the stock in recent weeks, but based on management's outlook, the company seems poised to continue rewarding shareholders.