Electronic Arts (NASDAQ:EA) have released their Q2 results for the fiscal year ending March 31, 2019, and it was a mix of good and bad news. Q2 itself delivered above EA’s guidance, but, overall, the publisher lowered their fiscal year 2019 revenue forecast by a substantial $450 million dollars. As of the writing of this article, this has caused EA’s stock to drop approximately 5 percent in after-hours trading.
Getting back to the Q2 numbers, EA brought in $1.286 billion in revenue and $255 million in net income, well above the same quarter last year, when they actually lost $22 million. Earnings per share were a solid $0.83, above the $0.58 per share analysts were calling for, and certainly better than the $0.07 a share they delivered in Q2 last year.
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The reason for EA’s success in Q2 was pretty simple – they sold a lot of sports titles. FIFA 19, Madden NFL 19, NHL 19, and NBA Live 19 all came out in Q2, and reviews and sales for the games (with the possible exception of NBA Live) have been very positive. Digital sales of EA Sports titles also grew significantly, with $780 million, or around 60 percent, of Q2 revenue coming from digital sales and in-game purchases.
As mentioned, EA lowered their FY2019 guidance fairly significantly, and Q3, which runs from October to the end of December looks particularly shaky. EA is expecting revenue of $1.375 billion and net income of $188 million, which is concerningly low for the busy holiday shopping season.
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The main culprit here is unexpected weakness in EA’s “games as a service” business, particularly FIFA and Madden Ultimate Team. EA insists FIFA 19 Ultimate Team uptake has been slow because the game just includes too many great modes, which comes off as a rather self-serving and flimsy excuse. EA predicts Ultimate Team will pick up in the coming months, but that remains to be seen. The publisher also chalked up the weak Q3 guidance to the one-month delay of Battlefield V and, again, insists that will be made up later.
Despite promising that FIFA 19 and Battlefield V will pay off down the line, and the February launch of BioWare’s Anthem, EA CEO Andrew Wilson and CFO Blake Jorgensen still struck a cautious tone when talking about Q3 during their earnings QA. While they, of course, had nothing but positive things to say about Anthem, it doesn’t seem like they’re willing to bet the farm on the game just yet.
Looking a bit further into the future, EA, like many other big publishers, is excited by the potential of cloud computing and their recently-announced “Project Atlas” cloud-based development platform. Wilson described EA’s vision for the future of gaming…
“At EA, our transformation continues in constant pursuit of the future of interactive entertainment. The very definition of a game is changing, much as it did when we went from offline to online experiences. Games are evolving from finite experiences to live services with infinite potential. These are experiences that are constantly evolving, and beginning to bypass the boundaries of devices, geography and time.
This is how games become an even more meaningful part of our daily lives, creating shared connections between you and your friends that exist both in-game and in the outside world. We are investing in the talent, the content and services, and the cloud technology to deliver these breakthrough experiences in our games today and in the years to come.”
The next year or so will be an interesting time for EA. The success of BioWare’s Anthem remains a major question mark, and if Ultimate Team begins to cool off, the publisher could very well sink into a relatively long-term funk. Here’s hoping their investment in cloud gaming and subscription services pays off, because they may end up needing both sooner than you might think.
