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After missing consensus estimates in its latest FY24 earnings release, Electronic Arts continued a string of foreboding headlines across the game industry by forecasting a weak quarter ahead. It appears that the next year will be a period of rebuilding and reinvestment. 

For the fiscal year ended March 31, 2024, revenue came in at $7.56B, up a modest 2% year-over-year, with net bookings landing at $7.43B (+1% year-over-year). Of that $7.56B in revenue, roughly 73% of it ($5.54B) came from live services, with the remainder attributed to full game sales. Net income landed at $1.27B, with $2.9B of cash and cash equivalents and another $3.09B in current liabilities at the close of Q4.

For the year ahead (FY25), EA has forecast $7.1B to 7.5B in revenue, representing a potential 6% decline. The company chalked this up to a light slate of upcoming new releases and content updates, as well as “headwinds” from its mobile business “related to portfolio optimization decisions taken over the last six months.”

Q1 will almost certainly be difficult, too: The last fiscal year’s first quarter saw the release of Star Wars Jedi: Survivor and tailwinds from the 2022 World Cup for EA’s Sports FC franchise, creating a set of extremely difficult-to-match quarterly comps for Q1 2025.

This latest earnings report comes after a tumultuous year for the company that saw it lay off roughly 5% of its workforce, shake up the exec team, reorganize the company, cancel games in development, sunset other titles (F1 Mobile, MLB Tap Sports, Kim Kardashian: Hollywood), and release a major flop, Immortals of Aveum. Zooming out further, EA has seen its stock price flounder from flat to falling over the last four to five years.

To be fair, EA is among the largest gaming companies in the world and is always going to be impacted by the same difficulties that the broader industry faces. It was far from the only firm to cut staff, shift strategic priorities, or release a poorly received AAA title in the past year.

Nevertheless, management is certainly not blameless. The 2021 Glu acquisition has been much criticized, the aging EA Mobile portfolio continues to flounder, and the pipeline of new releases for the year ahead is looking incredibly thin.

As with all earnings calls, there is some posturing as executives put on a brave face for Wall Street and analysts probe for hints at future growth prospects, eager to jump at the mention of the latest retail investing buzzwords (“AI! Metaverse! UGC!”). As such, it’s worth taking some of the recent eye-grabbing announcements with a grain of salt.

For example, CEO Andrew Wilson drew headlines when he stated during the most recent earnings call that “more than 50% of [EA’s] development processes will be positively impacted by the advances in generative AI." While this may well be the case eventually, the company is still early in its journey of actually implementing GenAI, as most companies of that size are. Wilson went on to describe EA’s timeline here as “efficiency over one to three years, expansion over three to five years, [and] transformation on a five-year time horizon.”

Wilson was asked about “the market opportunity for more dynamic ad insertion across more traditional AAA games,” which he also described as “still early.” While the company’s “expectation is that advertising has an opportunity to be a meaningful driver of growth,” and its teams are supposedly looking into this revenue stream, Wilson had little to share in terms of tangible growth initiatives. If prior efforts are any indication, the company will have its work cut out for it.

Outside of those headlines, the earnings call also contained a couple of important and under-discussed items we’ll elaborate upon here.

Increasing Stock Buybacks

EA announced “an expanded stock repurchase program” of $5B over three years. This brings the annual tally to roughly $1.67B set aside for buybacks per year, compared to the $1.3B the company has repurchased in each of the past three years. This increase comes as a result of the company’s “conviction in expanding margins and accelerating growth” and its prioritization of returning capital to shareholders, according to CFO Stuart Canfield.

Stock repurchase programs can be powerful tools for investors if executed well. (Check out William N. Thorndike’s book "The Outsiders" for some exemplary case studies.) Proponents of buybacks point to their ability to offset negative investor sentiment, increase earnings per share, boost share prices, and perhaps most importantly, return value to investors. On the other hand, the most critical factor in executing this strategy successfully is making the purchases at the correct valuation. Trying to time the market is rarely a good strategy, and these transactions seem to be on autopilot, more or less.

Regardless, the program will be worth monitoring moving forward. Will EA continue to extend its buyback initiative further? Will the repurchases be financed through debt or via increased cash flow, which the company may expect to realize, at least in part, through savings from canceled projects, sold office space, and reduced headcount? Is this focus on financial engineering, as opposed to investments in innovation or growth, the best use of management’s time and resources?

Leaning into IPs

Wilson opened the earnings call with a brief discussion of the “accelerating transformations across the entertainment landscape,” noting that consumer engagement and spending are increasingly concentrated to leading franchises.

“For a company that has some of the biggest IP in the world, this trend presents an incredible opportunity to evolve as an industry leader,” Wilson stated. “It is against this backdrop that we have built our three strategic pillars around entertaining and engaging massive online communities, telling blockbuster stories, and harnessing the power of community in and around our games.”

For EA, leaning into IPs means first and foremost leaning further into sports, where the company maintains a nearly insurmountable competitive moat around soccer (football) and (American) football games. The Sports FC franchise appears to have come out of the FIFA branding transition stronger than ever, with Wilson boasting that the company’s “global football franchise grew net bookings by high teens” in FY24.

EA’s Madden NFL franchise posted “record overall net bookings,” while elsewhere the company is poised to reintroduce its beloved College Football franchise in FY25 — one of the few bright spots on the announced slate of upcoming titles. Also back from the dead is EA’s PGA Tour franchise, which was reintroduced early in FY24 as a live service and should continue to receive updates moving forward.

Wilson also touched on the long-lasting success of Apex Legends (which recently passed $3.4B in lifetime net bookings) and The Sims (nearing its 25th anniversary), but spent very little time on the company’s other IPs.

Battlefield was mentioned only briefly, despite the franchise experiencing a number of recent internal changes. Chief among those was the closure of Ridgeline Games, a studio co-founded by former Battlefield director Marcus Lehto, to work on Battlefield. (Notably, Lehto doesn’t have “anything positive to say about EA”.) A team at EA Motive (the Canada-based team known for Star Wars: Rogue Squadron and the Dead Space remake) has been tasked with “unlocking” the franchise, joining remaining studios DICE, Ripple Effect, and Criterion in fleshing out both single and multiplayer Battlefield experiences. Unsurprisingly, no new Battlefield titles are expected in 2024.

Other projects left undiscussed included the forthcoming cross-platform, cross-progression Skate title (which conducted play tests as recently as March); two single player, third-person Marvel titles (one a Black Panther game from Cliffhanger Games in Seattle and another Iron Man adventure by Motive); and Dragon Age: Dreadwolf from BioWare, which may actually be the unannounced “owned IP title” in the slide above, if you believe the increasingly loud rumors. No updates, either, on the next-gen Sims game, Project Rene, or the latest iteration of Need for Speed.

Slimming Down the Mobile Portfolio

EA’s mobile portfolio was also barely touched upon in the earnings call. Despite nearly three quarters of the company’s net bookings coming from live services, only about 16% of net bookings are derived from mobile. For the fiscal year ahead, the company expects its mobile portfolio to be “up low single digit,” excluding sunset titles, which more or less aligns with its expectation of “low to mid-single-digit growth in the mobile market overall.”

EA’s recent struggles to improve its mobile business have been no secret. After hiring former Big Fish exec Jeff Karp to head up EA Mobile in 2020; bolstering its mobile roster with the acquisitions of Glu Mobile, Playdemic, and Codemasters in 2021; and failing to break into the mobile shooter space with Apex Legends Mobile and Battlefield Mobile, the company appears to be undergoing another strategic pivot.

The size of the portfolio has been significantly reduced, following the cancellation and sunsetting of numerous games. New leadership has been installed, with Karp and EA having parted ways as of December 2023 (according to LinkedIn). Furthermore, the mobile teams for EA Sports FC, Madden NFL, and The Sims have all consolidated with their respective HD franchise teams.

What remains today is a slimmed down roster of evergreen sports titles (FC Mobile, Madden) and an aging suite of cash cows like SimCity BuildIt (released in 2014), Star Wars: Galaxy of Heroes (2015), Design Home (2016), and Golf Clash (2017), among others.

In line with the aforementioned focus on IPs, the company will continue to lean into its sports games after an especially strong year from FC Mobile (see chart), while also “looking at opportunities to invest in a very limited number of mobile native titles that we believe have breakout potential.”

One such example may be yet another aged EA intellectual property. Plants vs. Zombies 3 has only been in soft launch for a few months (according to data.ai), so we will have to wait and see if PopCap’s latest release can live up to the profitability expectations of EA’s new strategy. However, given that Wilson also described the mobile market as “a fairly high risk opportunity” on the same call, we should expect the company to be measured in its approach to mobile.

The Road Ahead

With the exception of Dragon Age and the outside possibility of Skate, it seems unlikely that EA will have much on its FY25 slate beyond its annual sports titles. To be fair, these evergreen franchises should be more than enough to keep the company afloat through this forthcoming lull, particularly if College Football can recapture its former glory. Indeed, it would seem that the company is counting on this, given the aforementioned share buybacks, headcount reductions, and overall streamlining of operations. 

EA is already all-in on live services games, with plans to apply the same model to future iterations of Skate, The Sims, Battlefield, and likely College Football. It’s not clear, however, that these IPs have nearly the same cachet as EA Sports FC or Madden NFL, whose annual rosters refresh, and Ultimate Team cycles reliably print cash for the company, or even Apex Legends, which continues to defy the odds in its 21st season. Furthermore, we’ve already seen live service IPs like Lord of the Rings, F1, and Kim Kardashian fail to deliver results for EA (though these were all mobile games, to be fair).

On the flip side, EA will look to unowned mega IPs like Marvel and Star Wars to carry a lumpier, slimmed-down portfolio of single-player games. Perhaps interspersing these headline drops with the occasional remaster, third-party partner title, or second-tier IP will provide the company with a more Hollywood-esque, high-risk/high-reward release or two to round out its annual portfolio. If the company puts out more Immortals of Aveum-type failures, however, this category could quickly find itself on the chopping block.

It’s clear that EA isn’t in growth mode anymore, and judging by the stock price, has not been for several years. Will the company’s renewed focus on profitability and streamlined operations lead to efficiency gains and improved products? Or will the company instead use that cash flow to fund financially engineered shareholder returns? Perhaps those reorganizations and cost-cutting measures make the company a more attractive acquisition target — if a large enough acquirer even exists.

We will have to wait and see how EA navigates this upcoming year of austerity, but I find it difficult to get excited about the near-term future as an investor or a player.

(For additional context on all of the above, you can read the full transcript of the latest earnings call here.)

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