EA Stock Report Q4 FY21
EA Stock Report Q4 FY21
Another fiscal year, another quarter, and a whole lot of in game purchases. Thats the quick summary of the most recent earnings report from EA that entailed the fourth quarter of FY21 as well as some generalized data from the whole fiscal year. However, if you want to go a little deeper down the hole then let’s take a look at the data from the fourth quarter and the whole fiscal year to get an idea what we can maybe expect from Electronic Arts moving forward.
Record Breaking Fiscal Year
In FY21, EA reported record net revenue, record net bookings, which is basically all physical games sold in plus all digital purchases, and record operating cash flow, all of which is all quite impressive without much in the way of big releases. Although somehow EA was able to release 14 new titles in FY21, including the only truly notable title from Q4 being It Takes Two. As part of the EA Originals title, it was nice to see Hazelight announce that their excellent co-op game was able to sell over a million copies.
EA was also able to return approximately 800 million dollars to shareholders, which is done in either one of two ways. The first is by paying dividends to shareholders based on positive stock performance, which usually happens a few times per fiscal year and the second is by repurchasing their own stock, increasing the value by removing stock from the open market, which essentially makes each share more valuable as they become less watered down. I don’t remember seeing EA repurchase a large amount of their stocks back, which makes me think that they are referring to their dividends.
Out of the other 13 games that they released in the fiscal year, you have the usual suspects including Madden, FIFA and NHL. EA counts three expansions for the The Sims 4 as new releases, which is strange that they don’t count things like seasons for Apex Legends as new releases also. There are also two remasters including Need for Speed: Hot Pursuit as well as Command and Conquer Collection. For all new titles there is Rocket Arena, Star Wars Squadrons, Medal of Honor: Above and Beyond in addition to It Takes Two.
Most people wouldn't label those games as titles that are moving the needle or must buys, but based on the record setting fiscal year in many areas, it doesn’t matter. More proof that new titles matter less and less from EA is that “Live Services” accounted for a little over 1.3 billion out of 1.49 billion for Q4 sales. This means that in game purchases like cosmetics, battle passes and ultimate related purchases are responsible for over 87 percent of the total revenue. According to EA, these figures were driven by Apex Legends and FIFA ultimate.
FIFA Ultimate being a large driver of those financials doesn’t come as a surprise, but for some reasons Apex Legends being a large part does. It seemed that Apex Legends left the spotlight for Battle Royale after its release window, with stalwarts like Fortnite and newcomers Warzone taking up the attention. It’s clear that Apex Legends has carved out a niche for itself and Respawn is standing behind their product. Just recently with the launch of one of the new seasons was a new permanent 3v3 arena mode that was implemented along the lines of Counter Strike with purchasing being done before each round.
There is also proof that Apex Legends is succeding quite well and that was with the news that Apex Legends has now crossed 1 Billion in sales since its release back in early 2019. In two years, Apex Legends, a free to play game has just made a billion dollars and is likely only going up from here with new additions and more players joining every season. FY21 was nearly double the sales of FY20.
Rounding out the rest of the financials, the net revenue for Q4 was 1.346 billions which exceeding the estimate of 1.317. This resulted in a .26 cent earnings per share increase as opposed to a loss of 7 cents per share. As we now know, live service games accounted for a lot leaving full game sales only accounted for around 10 percent of total sales. Breaking down those figures even farther digital full game sales accounted for 62% which is up 13% when it accounted for 49% in FY20.
EA Forecast FY22
EA was in perfect position to take advantage of people being stuck at home while isolating as well as having a great free to play option in the form of Apex Legends. As it is clearly evident that although getting these people in the ecosystem for free is an upfront development cost that isn’t initially recouped, it seems to lead to greater purchasing.
Looking to the current and upcoming FY22, which started at the beginning of April, EA is expecting an even greater year than last with 6.8 Billion in total revenue. This forecast is substantially higher than FY21 when total revenue was 5.629 Billion. There are many reasons for the increase in revenue from year to year, especially in a year when the vaccine is stating to roll out and some people will start venturing to other activities other than video games.
As EA mentioned in the earnings report, they are expecting Apex Legends to continue to show substantial growth, all of the EA sports titles “are designed for next gen console platforms including FIFA, Madden, NHL and PGA”, which can hopefully bring some significant changes to the sports titles that have shown incremental differences over the past handful of years, the acquisition of Codemasters will lead to many new sports releases including F1 2021 that is due out in Q2, PGA landing in Q4 that can hopefully be a return to form from the studio that was behind the famous Tiger Woods golf series that ran from 99 to 2013, and finally the major reason for the increase in sales is Battlefield 6.
There are a lot of hopes riding on Battlefield right now and EA is making sure that this franchise doesn’t miss the Q3 window that it is scheduled ship in. This means that releasing Battlefield between the start of October and the end of December is crucial to the series. Not only will this be the first Battlefield since Battlefield V in 2018, which will be three years for a series that was pretty close to annual prior to this hiatus but EA have also delayed Need for Speed from 2021 into 2022 so that they could transfer Criterion onto the series to make sure Battlefield 6 is complete.
EA is very aware of the reputation they have for closing down beloved studios like Pandemic and Visceral and focusing only the sports and Battlefield titles. In an interview with Polygon, Laura Miele said “there is no way we would have made a decision like this without including Criterion. They’ve worked on Battefronts, they’ve worked on Battlefields and they have a really tight, close, collaborative partnership with DICE. I’m really confident this is going to be a pretty positive win for them”
It would be ignorant not to expect EA and Battlefield to try and take the Call of Duty approach with Warzone and offer a free to play Battle Royale even though nothing has been announced. Criterion being removed from Need for Speed to focus on Battlefield does lend a good amount of weight to this theory though as they solely developed the only Battle Royale mode that Battlefield has seen which was Firestorm that was released as part of BFV but likely floundered due to the underperformance of BFV.
Part of EA’s forecast is that full game sales for the fiscal year will account for around 40% of total sales with about 2 Billion when compared to slightly over 10% from FY21. This will likely be driven by new players that will be picking up the next generation sports titles for systems that haven’t seen many releases yet, Mass Effect Legendary Edition will likely sell well, and obviously the major franchise release of Battlefield 6.
With what looks to be minimal releases in the fall across the gaming landscape and if EA can deliver on some of these experiences throughout the fiscal year including meaningful changes to a few of their sports titles, if PGA can make a return to form, and most importantly if Battlefield 6 can win back fans of the series as well as attracting new players away from other shooters then EA looks to have a good chance at exceeding their expectations. The report also noted that they are only showing the titles that have been announced so far.
With only 8 titles on the docket for FY22, it is very likely that there will be at least a few other titles unannounced titles especially when compared to the 14 titles that they released in FY21 even if that included expansions to existing titles. Most of the curtain will be unveiled at the just announced EA Play Live, which is scheduled to take place on July 22.
EA has hinted on social media that Battlefield will be revealed in June, possibly during E3 but likely earlier and on their own terms with a deep dive for the game to be revealed at EA Play Live alongside a few other pleasant surprises most likely. Hopefully we will even get a little more information about the infamous Skate 4 that still haunts their social media.