Electronic Arts Counts on Star Wars for Their Digital Future

NPD’s latest report on U.S. retail sales of video games saw sales of gaming hardware, software, and accessories fall 25% to $495.2 in April this year. The decline was attributed to the growing importance of digital titles on mobile devices and the market’s willingness to wait for new gaming consoles. Gamers are waiting for the upgraded PlayStation 4 and Xbox 720 to hit the markets and have delayed game purchases till then. Overall gaming hardware sales fell 42% over the year to $109.5 million. Software sales fell 17% to $254.3 million.

Electronic Arts’ Financials
Electronic Arts (NASDAQ: EA) saw Q4 revenues improve 6% over the year to $1.04 billion, but missed the Street’s expectations of $1.11 billion. EPS increased significantly from $0.17 a year ago to $0.55, and were also short of the market’s projections of $0.57.

Digital revenues continued to report strong growth. Digital revenues grew 45% over the year and accounted for $618 million of their quarter’s revenues. Digital revenues grew due to a 65% increase in full game downloads, especially that of “SimCity.” Additional content revenues and free-to-play revenues also grew 45% driven by games like “FIFA Ultimate Team,” “Star Wars,” and “Bejeweled Blitz.” Distribution revenues grew 13% over the year to $26 million. The publishing segment saw a disappointing performance, with revenues falling 25% over the year to $396 million.

By region, sales in North America accounted for 42% of the quarter’s revenues and were down 6% over the year to $437 million. The European market saw revenues grow 27% to $557.0 million, while Asia revenues fell 36% to $46.0 million.

EA ended the year with revenues of $3.797 billion and EPS of $0.31. Digital revenues brought in $1.44 billion in revenues in the year.

For the current quarter, EA projected revenues of $450.0 million. Non-GAAP loss per share of $0.62 is also worse than the market’s estimates of a loss of $0.46 for the quarter. They expect to end the year with revenues of $4 billion and EPS of $1.20 compared with the market’s projections of EPS of $0.67.

EA and Disney
EA plans to release 11 new titles this year. The games on the list include franchises such as new releases of “Madden” and “FIFA,” along with “Sims 4” for personal computers and “Plants vs. Zombies 2” from their mobile game studio, PopCap. But, the big news for their game fans is the announcement earlier this month on their multi-year licensing deal with Walt Disney.

EA had an earlier agreement with Disney and as part of the agreement had released “Star Wars: The Old Republic” nearly two years ago. But the massively multiplayer online (MMO) game did not pick up as expected and did not manage to retain gamers. In fact, driven by the absence of enough paying subscribers, EA launched a free-to-play version to attract additional players. The poor performance of the game also led to the resignation of their CEO, John Riccitiello, in March this year.

As part of the new agreement, EA will have access to create games as part of the “Star Wars universe” and should be able to build a new franchise around the popular brand. Disney will continue to retain rights for the development of new titles within the mobile, social, tablet, and online game categories.

EA also opened a new studio in Los Angeles for their Stockholm-based DICE game developer. The studio will focus on the development of the new series of Star Wars games.

EA’s stock is trading at $22.21 with market capitalization of $6.69 billion. It touched a 52-week high of $22.84 earlier last week.