Electronic Arts (EA, Financial) reported some good set of numbers for the second quarter that cheered the street. Its results were better than the analysts’ consensus with significant increase in both profits and revenue. In fact its earnings grew a whopping 121% on a year over year basis. The growth was mainly driven by the launch of two major games during the quarter, namely Madden NFL 15 and FIFA 15. As a result of its strong performance the stock is near its 52-week high.
Seeing good traction
During the quarter, its players logged in more than 1.9 billion hours of gameplay, which includes both console and PC gamers. Even for its mobile games the company reported significant active users, reflecting the impact of EA in delivering long-lasting fun and enduring value for its players. And the company continues to thrive in this direction, even as it launched various new games during the quarter.
Madden NFL 15, introduced in August, is one of the most successful Madden titles it has launched in recent years. To date, the company received a good response from players with 48% growth in its Madden games year over year, and the management expects better results in the days ahead. Similarly, it launched Sims 4 and NHL 15 in September, which will further strengthen its gaming portfolio.
A strong pipeline
Interestingly, even before these games fade out the company is ready with its next set of titles. Considering the holiday season, Electronic Arts recently launched NBA Live 15. And as ever, the game has thrilling visuals with an exciting new game play. In addition, players are waiting expectantly for "Dragon Age: Inquisition," which is scheduled for launch in November.
And even with Battlefield 4’s fifth expansion pack it has the same expectations. Explaining these new launches, the management said, “We believe the additional time that we gave the development team has paid off with a great game that is immense, polished and fun to play. We expect momentum from Q2 to continue across our portfolio as more players join in our top titles across console, PC and mobile.”
Also, two of these games, Madden NFL and FIFA 15 were also launched for mobile, which can be played in both iOS and Android. It will also launch two new games for mobile namely "SimCity BuildIt" and "Peggle Blast." Now along with EA SPORTS King of the Course golf game, players can enjoy this new addition as well. These new introductions will play a significant role in increasing its user base even as the company reported a 250% rise in its monthly active users on a year-over-year basis.
Apart from these new launches, Electronic Arts offered cost-efficient innovative services to its players. EA Access was one such initiative for Xbox One players that allows unlimited play across a selection of EA titles and other valuable benefits for a monthly or annual fee. This offer was welcomed with high enthusiasm from players around the world, and the management expects this momentum to continue in the coming months. In fact it has high hopes from Asian markets, namely Korea and China where FIFA Online 3 was one of the top mid-session games by revenue during the second quarter.
Going forward, Electronic Arts has planned out three strategies that will drive its growth. First is its strength in the gaming platform, and it will continue to roll out even more exciting titles such as Battlefield Hardline, Star Wars Battlefront and various others. Second, it is focused on enhancing EA's digital platform, providing better services for games such as FIFA and Battlefield, even while maintaining lasting relationships with players. Last, it will strive to operate as one team and as the management said, “That is faster, more focused and constantly evolving.”
Conclusion
According to analysts at Brean Capital, “We believe EA will see 26 percent growth in F3Q15 digital revenue, underpinned by Ultimate Team and an expanded mobile slate. This should drive a 300 b.p. increase in gross margin to 71 percent versus the same quarter last year.” The stock has jumped considerably in the past few days and is near its 52-week high and considering its future prospects we could see more upside to this stock. Keeping these factors in mind investors can consider adding this stock to their portfolio.
