NPD Group estimates that U.S. retail video game sales fell 20% over the year in July to $707.7 million because of a significant drop in console gaming revenues. The researcher estimates that retail video game full-year revenues to fall 2% over the year. In July, sales of video game hardware, which includes hand-held game systems and gaming consoles like the Wii and Xbox 360, fell 29% to $223 million. Software sales fell 17% to $336.2 million, while sales of game accessories fell 8% to $127.8 million. Declining console gaming revenues are making game developers focus on social and mobile games instead.
Electronic Arts’s Financials
Electronic Arts’s (NASDAQ:ERTS) Q1 revenues grew 3% over the year to $524 million compared with the market estimates of $511 million. Loss of $0.37 per share was also better than the Street’s target loss of $0.39 per share.
EA has been focusing on digital revenues to help drive growth. Digital revenues for the company grew 11% over the year to $209 million. Over the previous year, digital revenues have grown 35% over the year and crossed $850 million. Digital revenues inclusive of console game revenues grew 91% during the last year. EA is now aiming to become the first video game company to reach $3 billion in digital sales, which they define as sales other than those from traditional discs.
For the current quarter, EA expects a net loss of $0.13-$0.03 per share on revenues of $925 million-$975 million. The market was projecting net loss of $0.04 per share on revenues of $902 million. For the full year, they are expecting revenues to be $3.9 billion-$4.0 billion with EPS of $0.70-$0.90. The Street was looking for revenues of $3.97 billion with earnings of $0.86 per share.
Electronic Arts Digital Focus
During the investor conference call, chief executive John Riccitiello rightly mentioned how the gaming environment has changed “radically” considering that “just 18 months ago there was no iPad, Google was just experimenting with Android, and most big games were limited to just a single big revenue opportunity at launch.” The growing presence of digital media is driving EA to continue to strengthen their presence in the segment through the creation of newer games and through acquisitions.
They are working on several social gaming titles, the most anticipated ones being Battlefield 3 and Star Wars: The Old Republic. They recently announced a tournament to test players’ ability to strategize and complete objectives needed to win Battlefield 3. The tournament is not only being called the largest console video game competition, is also an expensive marketing ploy given that the company has announced prize money of $1.6 million for the winner of the grand finale. The market is counting on the success of these two games to help drive video game revenues for the remainder of the year.
As part of their inorganic growth EA, acquired game developer PopCap Games for $750 million in cash and stock. PopCap’s digital studio is well known as the developer of games like Bejeweled and Plants vs. Zombies. PopCap boasts of 150 million games installed and played worldwide on platforms including Facebook, Google, RenRen and on mobile devices powered by the iOS and Android. EA plans to integrate PopCap’s digital capabilities with their own global presence to expand their digital market worldwide. This is their largest acquisition to date.
EA Expands Presence in Social Gaming
EA has also been expanding within the social gaming segment. Researchers estimate the U.S. social games market to grow 35% this year to $1.4 billion. To address the market, EA recently launched Sims Social, the Facebook version of Sims City. The game has done extremely well and within two weeks of launch had more than 23 million active users. The game now claims over 53 million active users.
They also acquired Bright Games, a social mobile game developer, that lets users play the games for free and earns revenues through sale of virtual goods. Their games are available on iOS and Android devices in addition to being available on Facebook.
EA’s stock is trading at $20.45 with market capitalization of $6.75 billion. It touched a 52-week high of $25.05 in July of this year.