Electronic Arts continues its impressive run.
Continue Reading Below
Shares of the video game publisher rose on Tuesday, after the company turned in a fiscal fourth quarter earnings report that greatly exceeded expectations. Electronic Arts' business appears to be firing on all cylinders, as demand for its games continues to surge in the face of strong next-generation console adoption.
During its subsequent earnings call, Electronic Arts' management, including CEO Andrew Wilson and CFO Blake Jorgensen, offered a number of key insights into the company's business. Below are five of the most important quotes from that call.
On Electronic Arts' upcoming slate of games
As a major video game publisher, Electronic Arts' business is entirely beholden to the popularity of its games. A major title can generate the bulk of its performance in a key quarter, while a disappointment could lead to an earnings miss. Early in the call, Wilson offered investors a quick rundown of Electronic Arts' plans for new games in the coming fiscal year.
In addition to Star Wars: Battlefront... the latest releases of Rory McIlroy: PGA Tour, Madden NFL, FIFA, NHL, and NBA Live... FY 2016 will see the return of Need for Speed as we introduce a new console experience as well as a new mobile game. Maxis will continue to deliver great new content for The Sims 4, including another expansion pack, multiple game packs, and additional game updates for the growing Sims 4 player community ... we will be returning to the Plants vs. Zombies universe with a bigger and bolder new console experience ...Minions Paradise... will be one of at least five new EA Mobile titles this year. In spring 2016, Mirror's Edge is set to revolutionize the action-adventure genre with its stunning first-person gameplay.
Margins are improving
As a business, Electronic Arts' underlying performance is improving. Two years ago, Electronic Arts' management made acommitmentto double adjustedoperating margins to 20%, but managed to surpass that guidance a year ahead of schedule. During the call, Jorgensen noted and explained Electronic Arts' rapid improvement.
Continue Reading Below
When we first started talking about improving the performance of Electronic Arts, I suggested it would take three years to double our non-GAAP operating margins from 10% to 20%. We've exceeded that in two years. In fact, at nearly 25%, our fiscal 2015 operating margin is over 500 basis points above our guidance at the beginning of the year and at its highest point in over a decade. We've dramatically increased our efficiency. Non-GAAP operating expenses are down a full 10 percentage points, from 56% of net revenue in FY 2013 to just 46% in FY 2015.
The digital shift continues
Electronic Arts has been a vocal proponent of the ongoing shift toward digital distribution. While physical game discs still compose the bulk of games Electronic Arts sells on major consoles, it may not be that way for much longer. During the call, COO Peter Moore noted the trends Electronic Arts is seeing in its business.
Our full-game downloads that you're seeing, they do vary from title and by geography. But the latest data we've got shows us at a 20%+ for Battlefield Hardline, and that's up from about 13% to 15% this time last year for our AAA title releases. So we're seeing the growth.
Expectations for Star Wars
Although Electronic Arts has many games scheduled for its upcoming fiscal year, in terms of importance, one title in particular is likely to stand above the rest. Star Wars: Battlefront, its upcoming first-person shooter, is scheduled to debut inNovember, just a month before the release of the next Star Wars film. During the call, Jorgensen gave Electronic Arts' expectations for the games, likening it to past Battlefront games and Electronic Arts' other first-person shooters.
We're thinking about [Battlefront] with two bookends. One bookend is the historical Battlefront, which did roughly 9 million units. The other bookend is our core first-person shooter franchise of Battlefield, which typically does around 15 million units. So I think in our guidance, we've roughly put in there roughly 9 million to 10 million units for the title, with we believe some upside obviously if things goes well. It is [Xbox One and PlayStation 4]-only and PC, and so that needs to get factored into people's thinking, but it is a very exciting title.
A possible delay?
Electronic Arts has delayed several of its key games in recent months, including most recently, Battlefield: Hardline. The delays don't seem to have had much of an effect on Electronic Arts' performance, as the extra development time may have ensured a better product. But that likely won't be true for Star Wars: Battlefront. A key element to the game's success could be its timing in relation to the debut of Star Wars in theaters. If Battlefront is delayed -- perhaps pushed out to January or February of 2016 -- some of the buzz could die down, and sales coulddisappoint. During the call, Wilson touched on thistopic, noting that anything is possible, but the company is currently very committed to launching Battlefront in November.
With that said, there are any number of things that might contribute to a miss or a need to move a date. As it relates to Star Wars: Battlefront, I would say as it stands right now, we feel very, very good about the trajectory and the velocity of the development team.
The article 5 Things Electronic Arts Inc.'s Management Wants You to Know originally appeared on Fool.com.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.