EA earnings call: Live services growth, mobile upside ahead
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Electronic Arts (NASDAQ:EA) reversed some early after-hours losses to come out slightly higher as it conducted its earnings call Tuesday following fiscal first-quarter earnings that were mostly in line but contained disappointing current-quarter guidance.
On the call, CEO Andrew Wilson said the company delivered a strong performance across the business, with EA navigating the "fluidity" of macro challenges with "our broad IP portfolio, our amazing talent and our growing network of players deeply based in live services all serve as unique structural advantages."
Net bookings fell 3% to $1.3B, though Chief Financial Officer Chris Suh noted that figure would be down just 1% in constant currency, and that the company issued two game launches in the year-ago quarter vs. just one this year. But it benefited from strength in the FIFA franchise; the acquisition of Playdemic; and the launch of Apex Legends Mobile, he said.
Live services net bookings rose 8% (or 10% in constant currency), and the highly recurring revenue now makes up 73% of the business, Suh said.
Elaborating on maintaining full-year guidance for net bookings of $7.9B-$8.1B, he noted that based on current exchange rates, the company expects nearly $100M in incremental headwinds to its full-year net bookings guidance - about 1 point of growth, "which mostly impacts the second half of our year," Suh said.
Suh also pointed to shifts in the business that the company is seeing: "We expect the strong Q1 results in our EA Sports and racing portfolio to continue offsetting the anticipated impact of an overall softer mobile market," he said. "This mix shift has a positive benefit to gross margin, and therefore minimizes the likely increased impact of FX on our underlying profitability."
Wilson said that console partners tend to think about console cycles on a 10-year time horizon, and that we're really early in this one (with Xbox Series and PlayStation 5).
"And while there are some supply chain constraints, I think what we're hearing from our partners is that we that we feel like they're going to ease up towards the back half and certainly into next year. But the most important thing that we're seeing is demand is off the charts" - a notable note given that Sony cut its own profit outlook after a relatively sharp decline in PlayStation game sales (to 47.1M units vs. a year-ago 63.6M).
Mobile will continue to be an important platform and has plenty of upside, he noted. There are 3.5B people playing mobile, and it's "hard to imagine any other platform having that kind of reach for us. We also see that it gives us reach in markets where we typically haven't been as strong," pointing to FIFA mobile as an example.
On a global basis, mobile is about 50% of the gaming industry, Wilson says, "and it's about 17% of our business. So that represents tremendous upside for us."
Asked the "awkward" question about media speculation suggesting EA and Wilson were persistently pursuing a sale, Wilson praised the company, noting it would "soon be the largest stand-alone independent developer and publisher of interactive entertainment in the world," and added "in a world where gaming is becoming more important to the lives of Gen Z and Gen Alpha, who will be the leading generation in terms of consumption and attainment for the future, I don't think we can be in a stronger position as a stand-alone company."
His objective is "always to take care of our people, our players and our shareholders. And should there ever be a way for us to do that differently the way we're doing it today, I of course have to be open to that. But I would tell you today we feel very, very confident and excited for our future."
For more detail, check out Electronic Arts' (EA) earnings call presentation.