A global leader in digital interactive entertainment, Electronic Arts (EA, Financial) recently came out with its fiscal 2015 fourth-quarter earnings. On the back of better-than-anticipated performance and investor delight, the shares of this epic developer and publisher of video games got a boost in after-hours trading and jumped 5%. So what did EA report that got the market excited? Let’s take a look at that.
By the numbers
The Redwood City-based company reported net income of $395 million on consolidated revenues of $1.19 billion, up from prior year’s $367 million or 7.6%. The top line also showed good growth of 5.5% compared to previous year’s $1.12 billion. All this trickled down to the bottom line, and the company reported earnings per share of $1.19, up from the prior year period’s $1.15. However, operating cash flow for the quarter dropped to $198 million from last year’s $281 million.
For the full year, EA reported net income of $875 million on revenues of $4.5 billion, a huge improvement over 2014’s net income of $8 million. Even the top line showed a brilliant growth of 26.3% over 2014’s $3.6 billion. Earnings per share for the full year came to $2.69, up from 2014’s $0.03. Among exceptional achievements, in fiscal 2015 EA was the No. 1 published on PlayStation 4 and Xbox One consoles in the world, on the back of the success of games such as Battlefield Hardline, Dragon Age, FIFA 15 and several others.
Digital sales is turning out to be a strong pillar
Looking at the fourth quarter alone, while revenue from products dropped 11.5% year on year, total revenue increased by 5.5% thanks to the phenomenal 40.6% hike in revenue from services and others. Turning to the full-year overview, both the segments did better this year – product revenue surged 20.3%, services and other revenue surged 35.1%, and total revenue got a boost of 26.3% compared to prior year period.
Electronic Art’s total net revenue. Source: EA.
In terms of revenue composition, for the full year, 51% of total revenue came from packaged goods and others, and digital sales accounted for 49% of total sales – analysts and industry experts believe in days to come the proportion of digital sales to total sales will increase further. Among digital sales categories, additional content accounted for 20% of total revenue, followed by mobile based purchases that accounted for 11%, full game downloads contributed 10% and subscription and other revenues accounted for 8%.
Electronic Art’s FY 2015 revenue distribution. Source: EA. Pie 1: broad categories, Pie 2: details of Digital sales
The interesting trend that can be noticed in the revenue composition is how powerful digital sales is becoming. If we compare the fourth quarter of last year with this year’s, digital sales accounted for 44% of Q4’15’s total revenue, and during the latest quarter its proportion increased to 52%. Even on a yearly basis, proportion of digital sales to total sales has been increasing consistently in past years –Â that’s definitely an encouraging trend.
CEO Andrew Wilson mentioned during the earnings call, “We are continuing to invest in our digital platform, infrastructure, security, live service systems, and community engagement teams to scale to the needs of a growing global player base that hold games as a vital and intrinsic part of their lives.”
EA’s offerings are striking the right chords
The fourth quarter was an exceptional one for revenue from Xbox One and PlayStation 4 that witnessed 172% increase over the prior year period – revenue jumped from $172 million in FY 2014 Q4 to $468 million. This obviously cannibalized slightly the sale of games on Xbox 360 and PlayStation 3 category – revenue dropped 42% to $328 million from last year’s $562 million. At the end of the quarter, revenue from consoles surged 8%, from mobile surged 18%, but dropped 7% from personal computers.
Wilson expects the console transition to continue at a rapid pace, and believes another 22 million units could be sold this calendar year, adding to the 27 million units in place at the end of calendar 2014. He pointed out that this is much faster growth than in previous generations, and approximately four out of every five copies of Battlefield Hardline sold for consoles that were either Xbox One or PlayStation 4.
EA now is working on what’s expected to be the next blockbuster series – “Star Wars Battlefront”. As pointed out by International Business Times, “The game is among a galaxy of products being developed as tie-ins with the forthcoming film, “Star Wars: The Force Awakens,” which is set to premiere Dec. 18 in the United States.” Other games that analysts have their hopes tied to are “Madden” and “FIFA 16.”
All in all, Electronic Arts posted a great set of numbers and continues to shift towards digital sales. All its efforts are paying off and results are trickling down to its bottom line. FY 2015 truly has been a transformative year for the game maker as it delivered remarkable high-quality games and services that helped to drive greater speed and efficiency into its business. EA management has already been able to increase earnings and cash generation, and is determined on improving profitability.
