EA Q3 FY2021 Earnings Report Analysis

Electronic Arts are easily one of the most disliked companies in the gaming industry. Despite the fact that they employ almost ten thousand people and have released some amazing games in the history of the medium and essentially mass popularized sports gaming, they have made some business first decisions.

These choices include shelving loved franchises, closing down adored studios after acquisitions and forcing unscrupulous monetary decisions into some of their games over the past decade. EA should not be hated but they shouldn’t be adored either because at the end of the day they are a publicly traded company and that means that at the end of the day, EA needs to make decisions to stay profitable. Pleasing investors and beating projections is how the company needs to operate to grow and continue to deliver great experiences.

On February 2, EA released their third quarter report that, unsurprisingly, sounded like most other gaming companies during the pandemic with very positive results. CEO Andrew Wilson said “We’re bringing great entertainment to hundreds of millions of people all over the world. With our expansion plans for EA Sports, strong catalogue of owned IP, leading live services, and ability to span every platform, we are growing to reach an even larger audience.

CFO and COO Blake Jorgensen furthered the positive remarks with a stronger outlook for the remainder of the fiscal year than originally anticipated. “We delivered another strong quarter, driven by live services, outperformance in Ultimate Team and Apex Legends. We are raising our outlook for the full year on the strength we continue to see in our business”

Back to the Battlefield 6

Looking even farther ahead EA sees a brighter future for the next fiscal year. “Even with the upside this year, we anticipate delivering growth in fiscal 2022, driven by the next Battlefield” Jorgensen continued. As the new entry in the Battlefield series is expected this holiday season, it will have been three full years since the last entry which means expectations are very high for the company, especially considering this used to be an annualized series, when you include spin offs and the Battlefront series. Pressure is hight on the team at DICE to deliver an excellent entry because the last entry in 2018 was Battlefield V, which was considered a massive disappointment to fans.

This overall disappointment from fans and middling reviews from critics means that the last time Battlefield had a hit was back in 2016 with Battlefield 1, which fans loved and scored much higher from critics, averaging around the 90’s. The lukewarm reception for Battlefield V in 2018 likely caused EA to remove the annualized entries from the series and reevaluate what makes the series special, similar to how Assassins Creed went on hiatus after dismal performance, technical problems and stagnant sales from Syndicate in 2015.

Ubisoft put a hold on the yearly entries to give the developers more time to create better experiences and they did so with Origins and Odyssey in 2017 and 2018 respectively. Fans were much more pleased with the return to form with Odyssey and EA has to be hoping for a similar result because outside of their sports titles this is one of the most important EA franchises.

Does it take more than two?

Turning the attention back to the third quarter earnings, the highlights include net bookings up 8 percent to 1.673 billion, which was just under what EA had projected with 1.675 billion. Some of the key drivers of the quarter were NHL, Madden and FIFA, including the last two getting next gen releases, FIFA ultimate team had record players in December, Apex Legends showing 30 percent growth, and even the Sims 4 still reaching record daily, weekly and monthly players in December and now has more than 33 million players.

For the rest of the fiscal year, EA will need to continue to rely on their existing titles, live services and Ultimate Team because they only have one more release on the docket until the end of the fiscal year, which is only a little over a month away at this point. It Takes Two, the latest game from Hazelight studios and the mind of Josef Fares is the only game left to release in fiscal year 2021 for EA. Hazelight is best known for and only known for A Way Out from 2018, the interesting co-op action adventure game. A Way Out was an enjoyable game with a very interesting premise but didn’t set the gaming industry on fire.

A Way Out must have done well enough for EA as Hazelight is not an EA studio. In an interview with IGN, Josef Fares revealed that A Way Out had sold over 3.5 million copies, which is quite impressive. A Way Out was strictly co-op, either online or local, but if you were playing online, only one person needed to purchase the game, making those sales figures look even more magnificent, when measured against a likely smaller budget than the typical EA title.

It Takes Two looks to be in a similar vein to A Way Out by being strictly co-op and based on EA’s marketing, will likely sell a similar manner to Hazelights first product, which sounds like EA would love. Either way, most of the sales from It Takes Two will come in the next fiscal year because the game releases with less than a week left in the fiscal year and I don’t expect It Takes Two to be a must play on day one.

EA is now forecasting net revenue for the entirety of FY21 which ends on March 31 of 6.075 Billion which is up from their original projection of 5.6 billion. With only one release left on the calendar this is clearly on the back of their live services. Net revenue for the quarter was 1.673 billion, which was up from the same quarter in 2019 at 1.59 billion. Obviously great to see an increase in a year with minimal releases, however, net income was actually down from 346 million to 211 million. This obviously leads to the question of where is the profit going, especially considering 2020 was a year that many gamers transitioned to digital only, reducing cost to publishers.

ACQUISITIONS

Although releases were pretty limited for the whole fiscal year with the exception of their annualized sports titles, one area where EA kept busy was in acquisitions. Back in December, EA outbid TTWO to acquire Codemasters for a little over a billion. One area in the earnings report the EA noted an opportunity for growth was in the sports segment, which they already have a good grasp on in most areas. Along with Need for Speed and Burnout, the acquisition of Codemasters gives them more racing IP’s that “grows EA’s presence in racing, creating a global leader in racing entertainment”

According to the report this will now allow EA to release new racing experiences annually. This is a very smart acquisition that fits right into the brand of EA and they will likely see the return on investment by giving the Codemasters games more exposure by branding them EA Sports titles. EA also sees this improving the workflow of Codemasters by giving the team access to the resources and knowledge from the rest of the EA development studios. Considering that EA expects to earn over 1.3 billion in a typically slower fourth quarter, this acquisition should be in the black sooner than later.

The other big news that EA made was the acquisition of Glu Mobile for 2.1 billion. According to the press release the benefits will be immediate “expected to grow underlying profitability beginning in its first year” I am not a mobile gamer in the slightest but EA understands business and wants to tap into the worlds largest and fastest growing segment more than they are already invested.

According to Andrew Wilson CEO “ mobile continues to grow as the biggest gaming platform in the world, and with the addition, we’re doubling the size of our mobile business” Based on their earnings report, their mobile division is very profitable but is an easy area to see room for growth as in the last quarter mobile earnings were only about 200 million out of a total of 2.4 billion dollars made

Mass Effect

Heading into the next fiscal year, EA is looking to have another great year. FY2022 will likely get off to a great start with the release of the long awaited Mass Effect Trilogy. It wasn’t long ago that EA used to say that old games should be old and they are about new experiences but in May, Mass Effect will join the long list of remasters that have happened over the past few years since EA has changed their stance on the remaster topic. Not only will Mass Effect sell well but it will also help people forget about some of the recent blunders that BioWare has had with Andromeda and most recently, Anthem.

While on the topic of Anthem, it was reported this week from Jason Schreier at Bloomberg that Anthem will likely either get the green light or get cancelled. I was under the impression from Biowares blog that Anthem 2.0 was already happening and strides were being made. According to the article, only about thirty people were working on the revision but that EA hasn’t fully decided if it wants to commit to the project or scrap it altogether. Although EA has indicated and shown in their earnings report that they like live service games which Anthem has the potential to be a source of recurring revenue, Anthem is still on the chopping block.

Time heals all wounds though and a few years have passed by since the failure of Anthem. Judging from the positive reaction that the Mass Effect Trilogy seemed to receive, it would likely be best if EA ended all work on Anthem. There is potential to elevate Anthem to a top tier game but too many if’s stand in the way. Bioware seems to have somewhat shaken the bad press that was associated with their last two missteps and all of these potential problems trying to revive Anthem could dredge those memories up, jeopardizing the potential sales of Dragon Age 4 and the next Mass Effect that was revealed at The Game Awards 2020. It also removes anywhere from 30-90 people from working on these projects to try to fix Anthem, which isn’t a guaranteed success.

Future of Battlefield

Finally, the future of Battlefield looks brighter than ever. DICE LA has always been more of a support studio for the Battlefield series since Battlefield 4, but why do I think the studio is working on something other than the main Battlefield 6? In an interview with the LA Times when it was announced he would become the studio head, Vince Zampella said “we want people to say this is a destination you can go and make new content” which doesn’t sound like much but considering DICE LA hasn’t released a game on their own, this statement combined with what was said this week, with senior design director at DICE LA confirming the studio is working on a Battlefield project, leads me to make the assumption that this will be separate from Battlefield 6. 

DICE LA wants to make a name for themselves, Zampella has a history with free to play and battle royale, senior design director at DICE LA confirms working on the Battlefield series and mentions 1942, and finally EA needing a free to play, live service to compete with games like war zone. All of these leads point towards DICE LA releasing a standalone battle royale mode tied into battlefield 6.

Games like Fortnite and Warzone have shown how much revenue can be generated with a free to play game that features something akin to a Battle Pass and there is no way that EA wants to let an opportunity like this get away while these modes are still popular. They do have Apex Legends, but it just doesn’t seem on the same level that Battlefield could on. Not looking too far ahead but FY2022 looks bright for EA and yes, they are making Skate 4