Close
Are you sure? Are you sure you want to report this comment? I understand, report it. Cancel

EA beats guidance as sales shrink, losses deepen

EA beats guidance as sales shrink, losses deepen

Tue 28 Jan 2014 9:50pm GMT / 4:50pm EST / 1:50pm PST
PublishingFinancial

Publisher notes difficulty of generational transition, weak sales on legacy platforms

Electronic Arts today released its financial results for the holiday quarter, beating its forecasts but falling short of the previous year's holiday numbers.

For the three months ended December 31, EA posted revenues of $808 million, down 12 percent year-over-year, but still better than the $775 million it expected in its guidance for the quarter. The publisher also posted a net loss of $308 million. Again, that's better than the $439 million loss it projected, but worse than the $45 million net loss it posted over the 2012 holiday quarter.

"In a transitional quarter, EA delivered EPS results above our guidance driven by strong sales of our next-generation console titles, continued growth in our digital games and services, and financial discipline across the business," CFO Blake Jorgensen said.

As far as highlights went, EA boasted that it was the number one publisher in the West during December on the PlayStation 4 and Xbox One, citing a lineup led by Battlefield 4, Madden NFL 25, FIFA 14, and Need for Speed Rivals. EA also released NBA Live 14 on those platforms and Peggle 2 on Xbox One during the quarter. The publisher said its lineup combined to account for 35 percent of PS4 and Xbox One software sales in the West during the quarter.

EA also touted its digital revenues, saying they jumped 27 percent year-over-year to $517 million on a non-GAAP basis. The company's mobile and handheld digital sales were up 26 percent during the quarter to $125 million, while the year-to-date totals of its microtransaction-driven Ultimate Team modes in its FIFA, NFL, and NHL games has grown 60 percent year-over-year.

Despite that growth in digital, EA is actually expecting its packaged goods business to show more growth for the full-year. EA is expecting packaged goods sales of $2.21 billion, up nearly 4 percent, while digital sales slow their growth to end the year at $1.70 billion, up just over 2 percent. Overall revenues for the fiscal year ending March 31 are expected to come in at $3.91 billion, which would be up 3 percent from the year prior. However, that's still a downgrade from previous guidance, a move Jorgensen said was prompted by "weakness in current generation software."

For the fiscal fourth quarter on its own, EA is expecting to post a net income of $230 million on revenues of $1.07 billion. Over the comparable stretch last year, the company posted a net income of $323 million on revenues of $1.21 billion

22 Comments

Craig Page
Programmer

382 218 0.6
Popular Comment
I am really shocked that they're losing this much money, I just assumed they were making record amounts of money because:

1. Every game they sell now has in app purchases, you can buy more swipes in PvZ 2, or more briefcases in BF4, and that costs real money.
2. They're releasing games that aren't even finished, and that has to save them money somehow right? Or else why would they do it. They must have saved at least $10,000,000 by not having a proper ending in Mass Effect 3, and how many more millions of dollars did they save by not testing BF4 at all before release?
3. Day One DLC, every game they sell has it. And it's not cheap either, usually $10 to $15 for a level they removed from the game to turn into DLC. Where did all of that money go?
4. EA single handedly defeated piracy by making every game "online only", even when it made no sense like with Sim City. Where did all of THAT money go?

Posted:7 months ago

#1

Christian Keichel
Journalist

634 866 1.4
@ Craig
Where did all of THAT money go?
In order to have money that can "go", you have to make money by selling games and that's where EA is struggling. Maybe we can read some articles, that call EA for publishing more games on Nintendo platforms now, not publishing games for the 3DS, the best selling dedicated handheld, could be considered as a stubborn move right?
In the end, it seems EA is loosing more money then Nintendo and we drowned in articles about how Nintendo is doomed and what they should do about it. It would be nice to see editorial and professional armchair analysts say something about EA for a change.

Posted:7 months ago

#2

Klaus Preisinger
Freelance Writing

1,072 1,007 0.9
Just because EA have in-app purchases and DLC does not mean people buy them. Same goes for the online only mode of Sim City which probably defeated and discouraged more customers than pirates.

EA is causing less doom and gloom than Nintendo because they are a software company. There is no risk to their bottom line because hardware is not performing as well as expected. EA need good software and can target whichever market promises good revenue. EA software sales are not tied to the number of WiiU consoles sold.

Posted:7 months ago

#3

Christian Keichel
Journalist

634 866 1.4
EA is causing less doom and gloom than Nintendo because they are a software company
THQ, Midway, Infogrames/Atari and Acclaim were software companies too, didn't helped them at all, when it they went bankrupt.

Edited 1 times. Last edit by Christian Keichel on 29th January 2014 11:51am

Posted:7 months ago

#4

Nicholas Pantazis
Senior Editor

1,017 1,463 1.4
Popular Comment
So EA lost considerably more money in a quarter than Nintendo did in an entire fiscal year. I know! EA should be software only... oh wait... they should focus a lot on mobile!.... oh right... well shit, maybe the things people recommend for Nintendo aren't magic bullets to success.

Posted:7 months ago

#5

Craig Burkey
Software Engineer

172 213 1.2
@Craig "They must have saved at least $10,000,000 by not having a proper ending in Mass Effect 3", it did have a proper ending, and a vocal section of the fanbase cajoled them into spending time and money producing a massive free ~2GB expansion of that ending to satisfy some of the naysayers, the multiplayer had micro transactions but it also had multiple free expansions. Also $10,000,000 not spent is not $10,000,000 in the bank, if you don't have it in the first place

I think EA use DLC and micro transactions very astutely to make games that would of been unviable without them, viable which would mean that money merely goes towards the game break even point and is not additional profit, also money is needed to create the DLC in the first place

Edited 2 times. Last edit by Craig Burkey on 29th January 2014 2:01pm

Posted:7 months ago

#6

Alfonso Sexto
Lead Tester

783 590 0.8
@Nicholas

Not every company has the same needs. It's like if I go and say "EA should release a console; it worked for Sony"

Posted:7 months ago

#7

Christopher Bowen
Editor in Chief

411 567 1.4
I'm not reading too much into this. Let's wait until they have full next-gen momentum, and have gotten their house in order on the mobile side, before we judge. It was a rough period, but let's not panic.

Posted:7 months ago

#8

Christian Keichel
Journalist

634 866 1.4
I'm not reading too much into this. Let's wait until they have full next-gen momentum, and have gotten their house in order on the mobile side, before we judge. It was a rough period, but let's not panic.
The question is, will EA's sales gain momentum when the next gen systems get more market share, the opposite happened during the last generation, the net income from 2007-2012 was:
2007 $76 million
2008 $-454 million
2009 $-1088 million
2010 $-677 million
2011 $-276 million
2012 $76 million

The company was only successful in 2007 and 2012, the accumulated profits were $152 dollar, the accumulated losses were $2.495 billion, this means the company lost $2.343 billion during the last generation..

Edited 1 times. Last edit by Christian Keichel on 29th January 2014 6:00pm

Posted:7 months ago

#9

Klaus Preisinger
Freelance Writing

1,072 1,007 0.9
Take FiFa 14. From FiFa 13 we know it is capable to sell 15 million units. If it does, then fine. If it does not, then questions are raised why the target was missed. One of the question is whether or not it was available on the right platforms. Even if FiFa 14 were to go totally bust, let's say by selling only two million units, next year can mean it is back to 15 million. Why? Because the 15 million customers of Fifa 13 are still out there, so for EA it is merely a matter of targeting the computer they have with a version of FiFa they want. Everybody knows, EA is that type of a company.

For Nintendo, things are a little bit more complicated. Mario Kart Wii sold 30 million units. So from the blind eyed perspective of an investor Mario Kart WiiU should sell the same amount. Problem being that Nintendo will release it on the WiiU, which is a console that does not have 30 million units installed to sell 30 million copies of Kart. Assuming Kart will cause 25 million WiiU consoles to be sold is unrealistic as well. For better or worse, Nintendo needs to sell its console before it can print money with its franchise IPs. EA does not need to do that, they only need to sell their games.

This crucial difference about what is necessary to return a franchise to sales in the tens of millions of units, is what drives the degree of negativity in people's outlook. Nintendo is not a company to aim for the quick fix and just earn that missing Mario Kart money of 2014 by selling it on PS3. Many of us love if they were and it certainly would make financial sense; but we are talking Nintendo sense here.

Posted:7 months ago

#10

Derek Fitzgerald
Director, Quality Assurance

7 7 1.0
Gents - posted a similar comment on last quarters results. I would highly encourage GameIndustry to give sufficient airtime to the Non-GAAP results in their summaries. As a software company, and a digital services company, a large segment of EA"s current quarterly revenues are not allowed to be classified as earned in the quarter under GAAP methodology. This is a common problem with GAAP accounting principles as they relate to digital service industries, and for anyone that follows the markets, you will notice that GAAP accounting results get essentially no airtime from financial analysts. This is also why a comparison to Nintendo is terribly flawed; a huge part of Nintendo's revenue is HW based, and many of their games (3DS products, for example), don't have the service delay requirements on accounting for revenue.

EA is certainly not all roses, but its making money. $1.26/share in the quarter, and generated roughly $600M in Free Cash Flow from Operations in FY14. There's a reason the stock appreciated >2% this morning after earnings. For a relatively neutral view of this data (you'll find some far more bullish), I'd encourage you to take a look at this article:


http://finance.yahoo.com/news/eas-q4-earnings-surge-revs-170640768.html

Edited 1 times. Last edit by Derek Fitzgerald on 29th January 2014 6:21pm

Posted:7 months ago

#11

Nicholas Pantazis
Senior Editor

1,017 1,463 1.4
@ Klaus Your argument would be at least somewhat logical if EA as a company was regularly profitable, but they aren't. Nintendo is (they have only two years of losses in the last 12, while EA is almost entirely losses for the last generation). And just because you (a writer with what I assume is zero background in economics) think it makes financial sense for a Mario Kart to be released on the PS3 does not mean it makes financial sense in the long term. If you think Nintendo didn't pay close attention to how quickly that decision brought SEGA down, you aren't paying much attention yourself.

In addition, Nintendo also doesn't have a flat WIi U userbase. It's not like that never expands. Mario Kart itself is an expansion of that userbase. They of course also have the option to expand their userbase with new hardware, price cuts, and eventually future platforms themselves.In EA's case they've been in a long spiral of losses ever since rising HD dev costs and alternate business models failed to yield the net gains they hoped for. Long-term they may still yet stabilize, but claiming Nintendo should be emulating them is quite silly. EA is far more bloated (with twice as many employees) and less profitable.

Posted:7 months ago

#12

Klaus Preisinger
Freelance Writing

1,072 1,007 0.9
Not every argument brought forth by investors has to make sense in the long term, this being planet Earth. A few months from now, Nintendo will release a game that can run on roughly 200 million computers in the world, yet is limiting its release to a platform of three point something million units. This will raise eyebrows among people looking at games as purely a trade commodity, or investors having a 3rd party mindset. When long term effects are pointed out, the same people will ask questions about the nature of these long term benefits. Questions such as "if you are accepting fewer sales in an effort to push your hardware, then how much do you make per hardware unit sold?", or "if you are not making money on the hardware either, does the licensing revenue outweigh the fewer sales of your own software?"

I wasn't suggesting for Nintendo to emulate EA, I was trying to point out how the "mercenary" nature of EA, at least when it comes to which platforms a game is released on, can work in favor of EA when it comes to investor trust. Nintendo has its own vision of itself, which can work against said investor trust in the west, but as others have pointed out, this bears no problem for Japanese institutional investors. Which means the discussion about whether or not Nintendo should release on other platforms is bound to continue to 2016.

Posted:7 months ago

#13

Bruce Everiss
Marketing Consultant

1,692 594 0.4
EA's problem is very simple. They lack focus.
They try and do everything gaming. So they have ended up with no strategic advantage, other than their sheer size.
Contrast and compare with the laser like focus of Activision, and their relative profitability.
The new management team need to come up with a strategic direction. A way of turning their core competences into competitive advantage and thence into profits.
Then they need to divest themselves of everything that doesn't match the new business model.

Posted:7 months ago

#14

Morville O'Driscoll
Games Blogger & Journalist

1,516 1,302 0.9
They try and do everything gaming. So they have ended up with no strategic advantage, other than their sheer size. Contrast and compare with the laser like focus of Activision, and their relative profitability.
Yeah, EA does seem to be striving to be an "All things to all people" company. Perhaps a by-product of the massive (relatively speaking) number of acquisitions they've done over the past decade. It strikes me they want to use the IP they've got for profit, but don't really know how - hence the Dungeon Keeper mobile game, and sitting on the Bullfrog IP. Which reminds me: There's a new Theme Park game due for release on Steam soon. Is it by EA? Nope. It's not "Theme Park [tm]", it's just a game about building a theme park.

Edited 1 times. Last edit by Morville O'Driscoll on 29th January 2014 10:01pm

Posted:7 months ago

#15

Peter Moore
Chief Operating Officer

15 94 6.3
Popular Comment
Fellow industry members...as per Derek's comments above, we are a software company that delivers ongoing live services digitally. Therefore we do not fit the GAAP reporting model. We report our results on a Non-GAAP basis (not mentioned in the story above).
Our Non-GAAP Net Income for the quarter was in fact $398MM...
This slide deck may prove useful for those trying to understand our actual financial performance

http://files.shareholder.com/downloads/ERTS/2925822051x0x721492/0cba6d81-588f-4d70-9805-54538adc594e/FY14%20Q3%20Earnings%20Slides.pdf

Posted:7 months ago

#16

Steve Peterson
West Coast Editor

108 73 0.7
Derek and Peter are quite correct. The Non-GAAP numbers are much more reflective of EA's position. GAAP just wasn't invented to handle the sort of business EA is in these days. One important number to look at aside from earnings per share and overall revenue is free cash flow. EA is churning out good amounts of cash, a sign of a healthy business. Another indicator is how the stock market responded today; investors pushed the stock up 1.4%. Not huge, but certainly an indication investors think the company has better times ahead.

Posted:6 months ago

#17

Nicholas Pantazis
Senior Editor

1,017 1,463 1.4
@ Peter and Derek Thank you, I appreciate the clarification. I apologize for using you as a tool to continue a long-standing argument on this site, and I'm glad to see you performed well this quarter.

Posted:6 months ago

#18

Peter Moore
Chief Operating Officer

15 94 6.3
Thanks Nick. I know it is confusing to use old world financial reporting tools (GAAP) to measure new world digital company performance, particularly given the stringent rules around revenue recognition. For our full fiscal year ending on March 31st, 2014, we project net income of $411MM, so those commenting above, worrying about our financial condition, should fret no further...

Posted:6 months ago

#19

Alfonso Sexto
Lead Tester

783 590 0.8
@Peter

Well, thanks for the clarification and the link. Good to know that things are looking better for you at EA. I have good memories from the office in Madrid where I started my career.

Posted:6 months ago

#20

James Brightman
Editor in Chief

226 265 1.2
@ Derek and @ Peter Moore, thanks much for the feedback. We weren't trying to paint EA in a negative light, we've just always gone by GAAP. That said the argument for non-GAAP in an increasingly digital world is a strong one, so we will begin to include both most likely going forward.

Posted:6 months ago

#21

Tom Keresztes
Programmer

638 241 0.4
How many EA games received critical acclaim last year?

Posted:6 months ago

#22

Login or register to post

Take part in the GamesIndustry community

Register now