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    Electronic Arts Inc (EA)

    Q4 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$135.50December 31, 2023
    Final Price$132.67March 31, 2024
    Price Change$-2.83
    % Change-2.09%

    What went wrong

    • Electronic Arts expects low single-digit bookings growth for fiscal year 2025, impacted by a lighter release slate and challenging year-over-year comparisons due to fewer title launches.
    • The mobile gaming market remains challenging, with EA projecting only low to mid-single-digit growth over the next 12 months. The company notes that high user acquisition costs, longer development cycles, and difficulty capitalizing on the market pose significant challenges.
    • Apex Legends, one of EA's key franchises, has faced declines, and while the company aims to drive growth back into the franchise through FY25, this is dependent on future advancements and innovations, indicating uncertainty in this major revenue stream.

    Q&A Summary

    1. Non-GAAP Margin Guidance
      Q: Does operating margin on net bookings reach 31.6%–33.4%?
      A: Yes, based on your assessment and the adjustment for the change in deferred revenue, operating margin on net bookings is 31.6% to 33.4%. The new non-GAAP measure helps you better understand our business as we move forward, especially as we consider the pipeline in FY '26 and '27. Expansion in FY '25 is driven by licensing changes, revenue mix, and cost discipline. Further expansion in FY '26 and '27 is expected, driven by our strong pipeline and continued investment in the future.

    2. Franchise Growth Expectations
      Q: Outlook for Apex and FC in fiscal '25?
      A: There is no material change from prior guidance. We expect growth in our core live service business, with mid-single-digit growth outpacing the market. FC grew in '24 and is expected to continue growing in '25 with new innovations. For Apex, we saw great engagement and retention in Q4. We are investing in the franchise with new seasons and innovations to drive growth in FY '25.

    3. FY '26 and '27 Growth Outlook
      Q: How will growth accelerate between FY '26 and '27?
      A: We expect operating margin expansion of 150 to 200 basis points on the FY '25 platform through '26 and '27. This growth is driven by expansion in our core business from increased player acquisition, engagement, and retention. Our pipeline of new IP will contribute to growth, alongside leverage from our cost structure investments, leading to non-GAAP operating margin expansion through FY '26 and '27.

    4. Stock Repurchase Program
      Q: Why accelerate the buyback over other capital options?
      A: Our dividend remains unchanged. The increased stock repurchase program aligns with our extended guidance framework, raising authorization from $2.6 billion to $5 billion. This signals our intention to scale through the stock repurchase plan, providing value to shareholders and flexibility over the next 2–3 years.

    5. AI Efficiency and Expansion
      Q: How will AI impact development processes?
      A: We are early in leveraging generative AI but already seeing efficiency gains, such as reducing stadium creation from 6 months to 6 weeks. In FC 24, we increased run cycles from 36 to 1,200, enhancing player individuality. Over 50% of our development processes could be impacted by AI. In the next 1–3 years, we expect efficiency gains; in 3–5 years, expansion to build bigger worlds; and beyond 5 years, transformation by offering AI tools to the community. Our 40 years of data may accelerate this timeline.

    6. Mobile Strategy and Expectations
      Q: Mobile growth drivers and market share outlook?
      A: Mobile remains important but is a high-risk market requiring significant user acquisition costs and longer development cycles. We expect low to mid-single-digit growth in the mobile market over the next 12 months. Our mobile business is profitable; we will lean into our massive online communities like FC, Madden, and The Sims, which will be mobile native. We are investing in a limited number of mobile-native titles with breakout potential.

    7. Advertising Revenue Opportunity
      Q: Thoughts on dynamic ads in AAA games?
      A: It's still early, but as we build community beyond our games, advertising has the potential to be a meaningful growth driver. We are thoughtful about advertising in our gameplay experiences and have teams exploring implementations inside game experiences and beyond.

    8. Apex Legends Growth and Strategy
      Q: Why bring back solo mode in Apex Legends?
      A: The Respawn team works closely with the community and adapts based on player feedback. Introducing solo mode reflects the evolution of Apex and our commitment to serving the community. We plan to expand modalities of play and attract more deeply engaged global communities. Apex will remain a cornerstone of our live service business for many years.

    9. IP Adaptation into Media
      Q: Plans for game IP in broader media?
      A: Players want to engage with their favorite IP across play, create, watch, and connect. We expect more gaming IP to manifest in film and television, which will be a tailwind for us. Additionally, we focus on expanding play experiences and fostering community creation, leading to billions of hours of content and deep social connections.

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