Electronic Arts turned in a strong Q3 (October through December) for their fiscal year driven by strong sales of Battlefield 3, Star Wars: The Old Republic, and FIFA 12. Looking at GAAP results, EA showed a smaller loss for the quarter than last year's quarter, and on a non-GAAP basis the results were very strong. (The difference is largely due to deferred revenue, where some revenue that comes in can't be counted according to standard accounting rules until the reason for the revenue is fulfilled; as in, a prepaid subscription means revenue isn't counted until each month passes, even though the company gets the cash up front. The result is a better cash flow position for companies with a large amount of deferred revenue.)
The earnings call was led by CEO John Riccitiello, along with Eric Brown, CFO; Peter Moore, COO, and Frank Gibeau, President of EA Labels. Some highlights from the earnings call:
John Riccitiello said in his opening statement that “We gained share in packaged goods in both North America and Europe on the strength of two titles, Battlefield 3 and FIFA 12, which both sold over 10 million units.” He also proudly noted that EA was “the #1 publisher on high-definition systems worldwide for all of calendar year 2011.”
In more standard terms, that means not counting the Wii as a significant platform, which is rapidly becoming the case. He capped that by noting the end result of the years-long strategy to transform EA from a purely packaged-goods game publisher into a digital game powerhouse: “We also hit an important milestone for the end of the calendar year; we delivered more than $1 billion in non-GAAP digital revenue on a 12-month trailing basis.” This means that digital should represent nearly a third of EA's revenue by the next fiscal year.
Riccitiello also noted that “Star Wars: The Old Republic sold 2 million copies, which makes it the fastest growing subscription MMO in history.” Better than expected performance from their servers, with 99.5% uptime, meant that EA was able to sell more than they expected in Q3, pulling in hundreds of thousands of unit sales that they had expected to have to wait until Q4 to sell. EA counted 1.7 million subscribers already, and that uptake from the initial free 30-day subscription was very strong. COO Peter Moore noted that Star Wars: The Old Republic would be getting a major mass-market network TV ad campaign with cross-promotions with Lucasfilm over the upcoming release of the Star Wars films in 3D. EA is also preparing for the launch of Star Wars: The Old Republic in Australia and New Zealand, and plans to bring the game to the rest of Asia as rapidly as they can. Frequent content releases are planned, with a major update for March.
Frank Gibeau, President of EA Labels, noted that “Battlefield 3 and FIFA 12 prove that making bigger hits out of fewer titles is a winning strategy.” He also previewed the release dates for some upcoming titles: February 28 is the SSX launch, FIFA Street appears in March, and the RPG Kingdoms of Amalur: Reckonings is coming very soon on February 7, with Mass Effect 3 arriving on March 6. Pre-orders for Mass Effect 3 are substantially ahead of where pre-orders for Mass Effect 2 were at a similar point.
EA was "the #1 publisher on high-definition systems worldwide for for all of calendar year 2011. -- John Riccitiello"
On the social game front, Peter Moore said we should expect 5 new games based on EA IP on the Facebook platform in the coming year. Regarding the social game EA moved from Q4 to Q1 of FY2013, Moore said “We're not going to ship a game before its time.”
The best quotes were left to John Riccitiello. When asked about whether tablets were a more important platform than smartphones, Riccitiello said “We're pretty much agnostic as to whether consumer gets our fare on PC, Console, smartphone, tablet. For us a tablet or a phone are similar opportunities, we're chasing the consumer wherever they want to play the product.”
Riccitiello noted that with their Nucleus registration system hitting 170 million registered users, EA is connceting with over 300 million users counting mobile and social. “We're starting to see the ability of EA to send hundreds of millions of impressions for titles from other parts of the company, and we're just beginning to do that at scale.” The goal? “We are trying to aggregate the eyeballs, minds, and wallets of players around the globe.” Ouch... that sounds painful. Well, if you've got them by the eyeballs, their wallets and minds will follow, right?
Pressed for details on upcoming social game titles, EA was reluctant to give information, and Riccitello explained why: “We have to deal with the reality that, I won't call it copying, but mimicry is common in this industry, and fast iteration and mimicry is something we have to guard against, so we don't put out a lot of information on the individual titles.” Not unreasonable, given recent events.
The compliments weren't only for EA's developers and managers. Even Activision got some kudos from Riccitiello, who seemed to be referring to Call of Duty Elite: “Frankly, I give a compliment to one of our competitors, who's got a subscription on the back end of an FPS title. I think that's a best-in-class performance.” Hmm... does this mean we may see a Battlefield 3 subscription service in the future?
Riccitiello wrapped up with the performance for the quarter: “EA will finish the fiscal year a profoundly different company than where we were at the start. We've launched Star Wars: The Old Republic, Battlefield 3, FIFA, and The Sims Social. Four games that reflect the evolution of our business from a traditional packaged goods model to one with a deeper relationship with the consumer, and a 365 day revenue potential. Popcap, a fantastically talented group of developers, elected to become part of EA, and in doing so they've vaulted us into leadership in casual games. We proved our fewer, better, bigger thesis, and are now making more revenue on fewer titles, and have now turned the page to focus on three new strategies: Building our brands, our platform, and our talent. We shattered our digital non-GAAP revenue goal, achieveing a $1 billion target in calendar 2011. We're a much better company than we were at the start of the fiscal year, and we're much better positioned for growth in the years ahead.”
