EA Q2 Fiscal Report Strong but Still Lacking

Electronic ArtsTwo days ago, Electronic Arts announced preliminary financial results for its second fiscal quarter, which ended on September 30, 2011. EA’s GAAP total net revenue is up from $631 million last year to $715 million this year, and its Non-GAAP total net revenue is up from $884 million this time last year to $1.034 billion this year.

“EA had a strong quarter on the strength of FIFA ’12, Madden NFL ’12, and The Sims Social,” commented CEO John Riccitiello. “Battlefield 3 is off to a fantastic start on sales and quality, and we are preparing to launch two more blockbusters: Need for Speed: The Run, and Star Wars: The Old Republic.”

CFO Eric Brown also noted that digital has grown 30% year-to-year.

Although there was an increase in revenue, EA still reported a net loss of $340 million for the quarter. This is reflected in an operating cash flow of negative $211 million. However, for the past year operating cash flow was positive at $117 million, although this was significantly smaller than the $192 million reported the year before. In total, for this quarter the company reported a gross profit of $283 million, and an operating cost of $657 million.

EA also reported 8 million Daily Active Users (DAU) and nearly 40 million Monthly Active Users (MAU) for The Sims Social, which launched in August and is currently rated the #2 game on Facebook; an 87% year-over-year increase on mobile sales; an increase of 37% to $904 million in digital revenue over this period last year; an increase of 74% to $335 million for downloadable and free-to-play content; and an increase of 99% to $278 million on digital revenue for consoles

EA listed FIFA ’12, Madden NFL ’12, Battlefield: Bad Company 2, NCAA Football ’12, FIFA ’11, NHL ’12, and The Sims 3 among its top selling games. They also noted that 6 million customers have downloaded Origin, and that Warner Bros. Interactive, Capcom, and THQ have been signed to the platform.

You can read the entire earnings release here.

Analysis: It looks like EA’s digital good services are growing well. However, with their draconic terms for Origin, I’m surprised they managed to hook 6 million consumers. It’s likely due to Battlefield 3. The game outright requires Origin, even if you purchase the boxed copy! I had thought about preordering the game, but I am wholly glad I didn’t. It’s important to note that Valve does the exact same thing with their games, but the main difference is that I’m pretty satisfied with their terms of service. Origin, however, has particular things in its terms that I’d like to stay away from.

Their revenue increased by quite a bit, but they’re still not recovering their operating costs. This is mostly due to heavy research and development, but there’s a chance that Star Wars: The Old Republic may turn the tides for them. Although many feel subscription service games are dying, The Old Republic is subscription-based, and many who have tried it have reported it to be a very, very good MMO and a fresh breath for the genre. If that holds true, the subscription numbers will likely bring in a very significant amount of profit.

It’s likely due to this that EA actually increased its sales predictions for the next quarter. However, one thing that seems unaccounted for is their acquisition of PopCap Games. It is unclear how this acquisition affected their financials for the term, but it does appear that they fully intend to utilize the company’s fastest selling title, Plants vs. Zombies, to its fullest extent. This is shown by the fact they plan on making the game available via Pogo Games, which is a free casual gaming web site. I find this amusing because I haven’t used Pogo Games since I was ten and was unaware that the service still existed, much less that EA had acquired it many years ago.

All in all, EA’s financials provide a stark reminder that the economy still isn’t the greatest, and even a games industry behemoth will have trouble pulling a profit if they focus too much in the wrong places.

Joshua Moore

About Joshua Moore

Joshua has been a gamer for a long time, starting back with the NES as a child. Since then his interests branched from game systems to general electronics; an avid fan of technology and computers, Joshua graduated with honors from the University of South Florida and now holds a degree in Electrical Engineering. His favorite games include Valkyrie Profile, BlazBlue, Left 4 Dead 2, and Ocarina of Time. Additionally, he attends various BlazBlue tournaments and tries to pick up other anime or air-dasher fighters whenever possible.