Electronic Arts (
) reported a 13% decline in GAAP revenues for the three months
ending December 2012 with a net loss of $45 million. Excluding
changes in deferred revenues, the company reported a 28% decline in
non-GAAP revenues, affected by sector-wide headwinds. Industry
sales during the holiday period dropped by 22% over the prior year
reflecting console transition as Microsoft's (
) X-Box 360 and Sony's Playstation 3 near the end of their product
Although console-packaged goods sales declined by 20% for the
calendar year, EA's long-standing franchises like FIFA, Battlefield
and Need For Speed delivered strong sales. Digital revenues and
mobile sales also showed growth during the last quarter.
Our price estimate for
Electronic Arts' stock is $17
, implying a premium of 10% to the current market price.
See our complete analysis of Electronic Arts stock
FIFA Remains Strong
The latest version of EA's soccer franchise, FIFA 13, sold 12
million units through the December quarter, an increase of 23% over
its predecessor, FIFA 12. FIFA 13 was the top selling game in
Europe in 2012, topping Activision Blizzard's (
) Call of Duty: Black Ops II.
Digital revenue associated with the game through EA SPORTS FIFA
Online 2 and FIFA World Class Soccer was over $100 million during
the last three months of 2012, up 98% from the figure reported for
FIFA 12. The number of gamers playing FIFA Ultimate Team increased
by 61% over the prior year even as revenue per user increased by
30%. The beta version for FIFA Online 3 has been released in Korea
and recorded average daily users of 440,000.
EA released the "Aftermath" expansion pack for Battlefield 3 in
December which allowed it to add 500,000 subscribers in the last
month of the calendar year, ending with a total of 2.7 million
subscribers. Battlefield 3 premium generated $108 million in
digital sales through the quarter. The company is expected to
release two major titles in the first quarter of 2013: Dead Space 3
and Crysis 3. The pre-orders for the latter are already outpacing
Crysis 2 pre-orders by 40%.
Although the Medal of Honor title and other games failed to
deliver in 2012, EA's established franchises hold it in a good
position to capitalize on the highly anticipated next-gen consoles.
FIFA, in particular, has delivered strong sales for several years
and will be adapted to fit the new consoles.
Digital And Mobile Sales Strong
Electronic Arts' digital sales platform, Origin, has over 39
million registered users including 17 million through mobile. EA
reported a 17% year-on-year increase in GAAP digital net revenue
for the quarter helped by strong sales of The Simpsons: Tapped Out
which was the top grossing iOS game for the quarter.
EA has also stated its intention to shift operation entirely to
the digital domain. The percentage contribution of digital revenues
to total revenues has increased from 26% in the fourth calendar
quarter of 2011 to 35% in 2012. As a result, the company's gross
profit margin increased from 60% in 2011 to 63% in 2012. We expect
a steady increase in digital revenues leading to increase in gross
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