EA Q2 2020 Earnings See the Fruits of Live Services’ Labor

EA Q2 2020 Earnings See the Fruits of Live Services' Labor
Cheyne Gateley/VIP

Without a recent, significant AAA release, the Q2 2020 earnings results for Electronic Arts (Q1 FY21 internally) are impressive, to say the least.

But if you find yourself chalking this up entirely to COVID-19 and its ushering-in of stay-at-home existence, reconsider.

As staggering as EA’s financial performance is for the last quarter, COVID-19 has a partner in crime when it comes to filling EA’s pockets, and this partner is at the center of the video game industry’s biggest, most common shift in revenue strategy: live services.

“Live services” is a term for video game releases that receive regular updates post-launch in the form of playable content or virtual in-game items, all of which usually come with fairly inexpensive price tags (aka “microtransactions”).

EA’s reliance on revenue from live services has resulted in an “unprecedented quarter of growth,” according to CEO Andrew Wilson during the company’s earnings call Thursday. 

It shouldn’t come as a surprise that EA would become so dependent on live services, as they alongside their competitors have more or less caught up to publishing leader Activision Blizzard over the last few years, in terms of sheer reliance.

EA has not had the smoothest transition to incorporating microtransactions into its game catalog. 2017 release “Star Wars Battlefront II” was the recipient of harsh criticism over its implementation of microtransactions, and futuristic shooter “Anthem,” intended to compete against the popular “Destiny” series published by Activision at the time, failed to meet sales expectations following poor reception after launching in February 2019.

While it struggled to sustain its initial popularity after launching just before “Anthem,” battle royale shooter “Apex Legends” was one such highlight for EA this Q2, with player engagement reaching its highest levels since the game’s first season. “The Sims 4” is also doing well, with daily, weekly and monthly active player levels reaching “record highs” across a player base more than 30 million gamers strong.

Quarterly net revenue went up 21% year-over-year to just under $1.5 billion, on top of net bookings for the preceding twelve months amounting to nearly $6 billion, a 17% spike from this point last year. Likewise, net cash from operating activities for the last 12 months is at a “record” $2 billion for EA, who also successfully completed a two-year, $2.4 billion repurchasing  program this past quarter, gaining over 700,000 of its own shares back for $78 million. Ultimately, this is the company’s best June quarter in its entire 38-year history.

COO and CFO Blake Jorgensen also reminded investors that this growth came despite the fact that EA has not released a major title since the pandemic first struck (EA’s last big release was “Star Wars: Jedi Fallen Order” in November 2019).

But this is just a small element of why things are about to get even better for EA, thanks to the EA Sports brand.

Player acquisition for “FIFA” more than doubled year-over-year, while “Madden NFL” saw over a 140% increase in new players. It isn’t surprising that sports fans would flock to the EA Sports catalog to get their football and soccer fixes, and Wilson even described the EA Sports as an “emotional center” for the entire sports industry during the earnings call, given the grim realities facing the live sports world.

With annual full-game releases, “FIFA” and “Madden” are highly lucrative platforms for microtransactions, and their explosive growth in player engagement is occurring on the tail end of the last iterations of both games. This is enormously promising for investors, as “Madden NFL 21” launches this quarter (August 28), with “FIFA 21” following in Q4 (October 9). 

Q4 will also see a new game come from EA’s “Star Wars” license courtesy of “Star Wars: Squadrons,” via developer Motive, another plus for investors given that “Star Wars: Jedi Fallen Order” performed very well commercially and critically without microtransactions. EA has since confirmed that “Squadrons” will also forego microtransactions, further proving the company is confident to continue letting EA Sports steer the live services ship while “Star Wars” stays focused on the single-player crowd, for the time being.

EA may finally be reaping the full benefits of the live services model it has prioritized. But whether or not EA has a chance of honing in on Activision Blizzard’s place in the market will be seen next week when the publishing giant discloses its own quarterly earnings. While EA can’t yet point to a single, business-defining title the way Activision can with “Call of Duty,” whose extremely popular online “Warzone” mode benefited massively from stay-at-home orders, EA is on the right track. 

If the company can then consistently nail live services beyond EA Sports, they may soon find themselves an “emotional center” for far more than forlorn sports fans.