Q3 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- EA expects accelerated growth beyond FY25, bolstered by their portfolio of industry-leading IP, including blockbuster releases like Battlefield and The Sims, which will fuel net bookings growth and increase underlying profitability.
- EA is focusing on expanding their major franchises like EA SPORTS FC, Madden, The Sims, Battlefield, and Apex Legends to drive compounded growth and operating leverage, leveraging their massive player base of over 700 million players.
- EA is leveraging strong partnerships with sports leagues to create new engagement opportunities, such as the additive release of EA SPORTS College Football, tapping into incredible pent-up demand and expanding their football community.
- EA expects a lighter release slate in FY25, including no Battlefield release, which may lead to slower growth compared to prior years.
- The company anticipates headwinds due to timing of content releases and tough comparisons, especially with major franchises like FC and Apex, potentially impacting net bookings.
- Uncertainty around the impact of changes in the European App Store fees on gross margins could negatively affect EA's mobile business, with implications still being assessed.
-
Operating Leverage Drivers
Q: What are the primary drivers of operating leverage?
A: Management explained that their overarching framework is grounded in three pieces: accelerating growth on the top line, expanding leverage on the bottom, and increasing cash flow. They expect to drive compounding growth across core franchises and release new titles from their pipeline. Their Live Services make up almost 75% of the business, highlighting its evergreen nature and ability to drive compounded growth. They also focus on managing costs to ensure investment for the future, which will ultimately provide leverage over the long term. -
Top-Line Growth Acceleration
Q: Can you accelerate top-line growth in the next two years?
A: Management expects growth in their core business, which is 73% Live Service, and a consistent full game sports release slate. While FY '25 will have a lighter release slate compared to the prior year, they continue to invest in their growth opportunities. They believe that the strong pipeline, including titles like Battlefield, Mass Effect, and Star Wars, will drive accretion and long-term growth and accelerate incremental cash flow in the following years. -
Franchises with Most Opportunity
Q: Which franchises have the most incremental opportunity ahead?
A: Management sees significant opportunity in existing franchises that engage massive online communities. They highlighted FC (Football Club), noting that partnering closely with core leagues offers more growth opportunities than before. They are building around Madden NFL, expanding the college football base, and investing in The Sims, Apex, and Battlefield. -
Mobile Industry Outlook
Q: What is the state of the mobile industry and EA's outlook?
A: EA's mobile bookings were up 5% at constant currency in Q3, excluding the prior year's Apex. They saw double-digit improvement between Q2 and Q3 in their overall mobile portfolio. The strategy focuses on leaning into successes like FC Mobile, Madden, Sims, and Battlefield on mobile. They aim to drive profitability to historic levels while seeking big hits and IP opportunities that can stand alone on mobile. -
Apple App Store Fee Changes
Q: Will Apple App Store fee changes in Europe impact mobile margins?
A: Management is actively reviewing the updates to the European App Store tied to fees. They are working to understand potential implications to their business and any changes to gross margins. They expect to provide a more detailed update next quarter. -
Partnerships and Sports Betting
Q: Are there opportunities for deeper partnerships and sports betting?
A: EA has incredible relationships with sports leagues like the NFL and NBA, many spanning over 30 years. They see tremendous opportunity to grow their business through evolved service opportunities with league partners. Regarding sports betting, management acknowledged the industry's interest but did not provide specific details on entering real-money gaming. -
Subscription Gaming and EA Play
Q: How is EA approaching subscription gaming and EA Play?
A: EA has been early in subscription with EA Play, which exists across platforms and is part of Game Pass Ultimate on Xbox. Management believes that subscription will be a meaningful part of the industry over time. They see an opportunity to disrupt how households consume content and believe they are in a strong position due to their unrivaled portfolio. -
New Nintendo Console Implications
Q: Will a new Nintendo console benefit EA's games?
A: While unable to comment on unannounced platforms, management stated that new platforms offering improved CPU, GPU, memory, battery life, screen resolution have been good for their business. Improved hardware allows players to experience their games at the highest level, benefiting franchises like FC, Madden, Battlefield, and Apex. -
College Football Game Impact
Q: How will the College Football game affect your ecosystem?
A: Management expects the College Football game to be additive. Madden is performing incredibly well, being the biggest sports game in calendar year 2023 with increased engagement and monetization. There's an incredible amount of pent-up demand for College Football, and they expect it to expand the football community both domestically and internationally. -
Unified Sports Community Opportunity
Q: Have you considered unifying your sports communities?
A: EA recognizes the opportunity to harness the power of their over 700 million player network, with about half in sports games. They see a meaningful opportunity to expand both inside and outside of games, leveraging the breadth and depth of their sports portfolio and relationships. They are exploring ways to bring highlights and non-gaming content into the ecosystem. -
Apex Legends Crossovers
Q: Will there be more substantial crossovers in Apex Legends?
A: The recent Final Fantasy crossover in Apex Legends was well received and performed incredibly well. It opened their eyes to possibilities and showed they could do more in that direction without impeding the game's authenticity. Management expects more opportunities for substantial crossovers in the future.