Electronic Arts Q4 2022 Earnings Report

Electronic Arts EPS Results

• Actual EPS: $0.82
• Consensus EPS: $1.04
• Beat/Miss: Missed by -$0.22
• One Year Ago EPS: $0.72

Electronic Arts Revenue Results

• Actual Revenue: $1.75 billion
• Expected Revenue: $1.77 billion
• Beat/Miss: Missed by -$16.19 million
• YoY Revenue Growth: +17.50%

Electronic Arts Announcement Details

• Quarter: Q4 2022
• Date: 5/10/2022
• Time: After Market Closes
• Conference Call Date: Tuesday, May 10, 2022
• Conference Call Time: 9:01AM ET

Electronic Arts (NASDAQ:EA) (NASDAQ:EA) is a global developer and publisher of interactive entertainment. The company creates and distributes games for consoles, personal computers, mobile devices and online platforms, with business activities spanning full-game sales, downloadable content, subscriptions and live services.

Electronic Arts’ portfolio includes sports franchises such as EA Sports FC, Madden NFL, College Football, NHL and UFC, as well as entertainment and action titles including The Sims, Battlefield, Apex Legends, Need for Speed and Plants vs. Zombies. Its games are distributed internationally through retail, digital storefronts and direct-to-consumer channels.

Founded in 1982, Electronic Arts is headquartered in Redwood City, California, and serves players across markets worldwide. The company is led by President and Chief Executive Officer Andrew Wilson.

Electronic Arts Q4 2022 Earnings Call Transcript

Key Takeaways

• EA reported a record fiscal 2022 with $7.515 billion in net bookings, over 20% underlying profit growth, and 580 million unique active player accounts.
• For fiscal 2023, EA issued guidance of $7.9–8.1 billion in net bookings (up 5–8%), driven by live services and mobile launches, despite a ~3-point FX headwind and a 1-point impact from Russia market cessation.
• EA will rebrand its football franchise from FIFA to EA SPORTS FC in FY 2024, leveraging 300+ licenses and ending its long-standing FIFA partnership after the final FIFA-branded release this year.
• Investment is rising with expected operating expenses of $4.2–4.315 billion (up for mobile user acquisition and new hires) and a boosted U.S. tax rate from 18% to 19%, which may pressure near-term margins.
• Mobile business momentum remains strong, with net bookings surpassing $1.2 billion, ROAS recovered to pre-IDFA levels, and major upcoming releases including Apex Legends Mobile, FIFA Mobile, and Lord of the Rings.

Presentation

[Operator]

Good afternoon. My name is Charlie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts Q4 2022 earnings Conference Call. Mr. Chris Evenden, Vice President, Investor Relations, you may begin your conference.

[Chris Evenden, VP of Investor Relations at Electronic Arts]

Thank you, operator. Welcome to EA's Q4 2022 earnings call. With me today are Andrew Wilson, our CEO, and Chris Suh, our CFO. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks, an audio replay of this call, our financial model, and a transcript. With regards to our calendar, our Q1 fiscal 2023 earnings call is scheduled for Tuesday, August 2. As a reminder, we post the schedule of our entire year of upcoming earnings calls on our IR website. This presentation and our comments include forward-looking statements regarding future events and the future financial performance of the company. Actual events and results may differ materially from our expectations.

[Chris Evenden, VP of Investor Relations at Electronic Arts]

We refer you to our most recent Form 10-Q for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of today, May 10, 2022, and disclaims any duty to update them. During this call, the financial metrics, with the exception of free cash flow, will be presented on a GAAP basis. All comparisons made in the course of this call are against the same period in the prior year, unless otherwise stated. Now, I'll turn the call over to Andrew.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Thanks, Chris. I hope all of you are well. I want to start by thanking our incredible teams at Electronic Arts. We have the most talented people in the industry who every day demonstrate passion, creativity, and determination. I'd also like to extend a warm welcome to Chris Suh. Chris joined us in March as our new Chief Financial Officer. He is an exceptionally qualified leader, and I am looking forward to our partnership as we drive our next phase of growth. EA delivered profitable growth in FY 22, a record-year in every important measure of our business, total players, engagement in our games and live services, net bookings, and underlying profit.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

We grew our global network of players to more than 580 million unique active accounts, fueled by new players joining titles including EA Sports FIFA, Apex Legends, and The Sims, and new players that we welcomed from our acquisitions. The strength of our broad IP portfolio, our creative talent, together with highly recurring revenue streams, continues to supercharge growth in our business. We delivered $7.515 billion in net bookings and underlying profit grew more than 20%. It was a record-year, and our talented teams rose to the challenge in a big way to inspire and entertain hundreds of millions of engaged players worldwide. Games are now central to people's lives and younger audiences have more power as consumers. Gen Alpha, Gen Z, and Millennials are digital natives, and they are gaming first generations.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

They see gaming as their number one choice for entertainment. The consumption of entertainment and sport is deeply social, with players across our network using games to stay connected to friends and to express themselves. The future of entertainment is interactive, and we derive strength from three structural advantages. Our IP, our incredible talent, and our growing network of players deeply engaged in our live services. First, our IP. Everything begins with amazing games, and we continue to invest in one of the most powerful IP portfolios in all of entertainment. Apex Legends will expand in every dimension, going from strength to strength. New gameplay is coming to the console and PC live service. A new mobile service launches globally this month, and the grand finale of the 2022 Apex Legends Global Series for eSports is in July.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

EA SPORTS and Racing are set to grow significantly in FY 23. We have 6 new EA SPORTS titles this year with more in development. Our pipeline for this year and future years features big beloved IP that we cannot wait for players to experience, including Need for Speed, Dead Space, Star Wars, The Sims, Skate, our BioWare franchises, and Lord of the Rings. Our two new studios in Seattle are working on new projects. Our Motive Studio has an unannounced title in development, and we have more underway across our global studio teams. Next, we have the best talent in the world. Making amazing games starts with incredible game makers. Innovating across our business, our people make Electronic Arts a great place to work, from delivering safe and secure platforms to telling exciting stories and developing our next generation of creators.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

We have a collective team of leaders who together deliver one of the broadest portfolios in the industry every year while continuing to pioneer new experiences. We are proud of our distinctive talent from across the many parts of EA who continue to deliver more exceptional games and content at scale. Finally, we have a large growing network of players deeply engaged in our live services. To provide a sense of scale, we have more daily, weekly, and monthly active players across our entire portfolio. FIFA Mobile recorded its biggest quarter ever, with unique new players surging nearly 80% year-over-year. Apex Legends is amongst the top live service games in the industry. As we look ahead, we're investing in ways for fans to have amazing shared experiences together, whether that's by playing, watching, or creating.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Through our console, PC, and mobile live services, through esports, through other original content, and with the tools that unleash the creativity of our players, we will grow what are already some of the world's largest and most engaged entertainment communities. Earlier today, we announced that starting next fiscal year, our football experiences will move under a new EA SPORTS FC brand. This is such an exciting moment for us and for our fans. We've just had our biggest-year ever for EA SPORTS FIFA games, building on nearly 30 years of connected experiences for players across more than 150 million unique accounts. With more than 300 licensed partners, 30 leagues and federations, 700 teams, and 19,000 athletes, the future of global football is huge. We're excited to grow EA SPORTS FC.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

It will be the only place that fans can play in the UEFA Champions League, CONMEBOL Libertadores, the Premier League, Bundesliga, Serie A, LaLiga, MLS, and many others. Our Global Football franchise has long been at the forefront of innovation. From the first isometric play angles to online play, Ultimate Team and women's teams, the first narrative story mode with The Journey to VOLTA to HyperMotion, we have repeatedly delivered new ways to play the game. We're thankful for the many great years of partnership with FIFA, and we are looking forward to delivering another full EA SPORTS FIFA game later this year, filled with great features and World Cup content. The new era begins next year with EA SPORTS FC.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

With a total addressable market of more than 3.5 billion football and soccer fans worldwide, EA SPORTS FC will be the authentic, inclusive, and immersive global entertainment property at the epicenter of football fandom. We have amazing games we've built around powerful IP made by incredibly talented teams. We have a network of more than 0.5 billion player accounts. We have outstanding engagement in our games and live services, fueled by social connection and shared experiences. With these strengths at our core, FY 2023 is set to be a year of innovation, growth, and leadership for Electronic Arts. Now I'll hand the call over to Chris.

[Chris Suh, CFO at Electronic Arts]

Thanks, Andrew, and good afternoon, everyone. As Andrew said, FY 2022 was a record-year, with net bookings that exceeded $7.5 billion. This is more than $200 million ahead of our original guidance, driven by growing player engagement across our broad portfolio of live services and games. We grew both net bookings and underlying profit by over 20% for the full-year. Operating cash flow for the year was $1.9 billion, nearly $150 million above our original guidance, and we returned almost $1.5 billion to shareholders. These results speak to the power of our diverse portfolio and to the durability and consistency of a live services business founded on deep player engagement.

[Chris Suh, CFO at Electronic Arts]

For the Q4, net bookings were $1.75 billion, up 18% from the prior year and reaching a new Q4 high even with the action we took to cease sales in Russia and Belarus during the quarter. Live services net bookings grew 14% year-over-year. We delivered Q4 net revenue of over $1.8 billion, ahead of our expectations and up 36% year-over-year. Underlying profit was well above our expectations. Q4 operating expenses came in lower than our expectations, driven by the timing of some marketing sales activities. We're continuing to prioritize our investment into our best long-term growth opportunities while also remaining agile to realize cost savings and implement efficiencies where appropriate.

[Chris Suh, CFO at Electronic Arts]

We generated $444 million in operating cash flow during the quarter and returned a further $373 million to shareholders through dividends and our ongoing share repurchase program. Now, let me talk about our full-year performance. Live services net bookings grew 17% year-on-year to nearly $5.4 billion and made up over 71% of our total business. Full game sales were up 34% to $2.1 billion. Our healthy live services growth was driven by strength across our broad-based portfolio, most notably by Apex Legends and FIFA. Apex Legends is up over 40% for the year, taking it past the $2 billion milestone in lifetime net bookings. Season 12 finished yesterday and was the most successful ever. Of course, Apex Legends Mobile is performing well in tests and is close to launch.

[Chris Suh, CFO at Electronic Arts]

FIFA 22 is the most successful FIFA ever launched to date, with net bookings up double digits. Full game sales growth was similarly diverse with Battlefield, FIFA 22, Madden NFL, It Takes Two, F1, and Mass Effect Legendary Edition, all important contributors. On consoles, digital represented 65% of full game units sold through, up three percentage points from last year. In mobile, we passed the $1 billion milestone this year with nearly $1.2 billion in net bookings. As a result of great work by our teams, our return on advertising spend is now roughly back to where it was before the IDFA changes. Now we're looking to maintain that ROAS level as we scale spend back to the level it was before and as we continue to learn and to adapt to market changes.

[Chris Suh, CFO at Electronic Arts]

Across our full portfolio, 12 titles contributed $100 million or more. Now let me turn to FY 2023. As Andrew laid out, we're entering the year from a position of strength. We're experiencing strong engagement across our live services, have great early indicators for our mobile launches, see continued momentum in our annual sports titles, and have a strong slate of console titles scheduled for the second half. We expect fiscal 2023 net bookings to be $7.9 billion-$8.1 billion, up 5%-8% versus FY 2022, driven by growth in live services, particularly in mobile, and supported by the strong launch slate in the second half.

[Chris Suh, CFO at Electronic Arts]

Three key drivers of our mobile growth in FY 2023 are the launch of Apex Legends Mobile, growth in FIFA Mobile, and the launch of The Lord of the Rings: Heroes of Middle-earth later in the year. FX is a headwind of nearly 3 points net of hedges relative to last year for both net bookings and underlying profit, which puts our net bookings guidance in constant currency at 8%-10%. Additionally, the impact of the stoppage of Russia sales is 1 percentage point to net bookings and 2 points to underlying profits. Adjusted for these factors, we continue to see healthy underlying performance, which illustrates the durability of our portfolio of live services. We expect cost of revenue to be $2.02 billion-$2.065 billion, in part reflecting the anticipated strong growth of our mobile business.

[Chris Suh, CFO at Electronic Arts]

We expect operating expenses to be $4.2 billion-$4.315 billion. This is driven by investment in user acquisition for our two major mobile launches and adding talent to our development team to deliver the live services and title slates we have in development for FY 2024, FY 2025 and beyond. Also note that we've increased the marginal tax rate used by our long-term model from 18% to 19%, primarily due to U.S. tax rules published in January. We expect operating cash flow of $1.6 billion-$1.65 billion and capital expenditures of around $200 million, which would deliver free cash flow of about $1.4 billion-$1.45 billion.

[Chris Suh, CFO at Electronic Arts]

The business continues to be a strong generator of cash, although the year-on-year number is down slightly, primarily due to timing as our biggest non-sports launch is coming in Q4 with collections in FY 2024, and also because our tax rate has increased. We continue to be committed to growing our cash return program and announce today that we're increasing our dividend by 12% from $0.17 to $0.19 per share, payable each quarter. We expect to continue to repurchase stock under our current authorization, and we will revisit it closer to the expiration in November 2022. We expect fiscal 2023 GAAP revenue to be $7.6 billion-$7.8 billion and earnings per share of $2.79-$2.87.

[Chris Suh, CFO at Electronic Arts]

We anticipate net bookings for the Q1 to be $1.2 billion-$1.25 billion. As a reminder, in the prior year we had a number of new game launches in Q1, whereas this Q1 is primarily live services with only F1 22 launching on console and PC later this quarter. In contrast, this coming Q2 has a profile very similar to last year's Q2, with launches of Madden and FIFA, plus some live services growth offset by some Ultimate Team net bookings phasing into Q3. For the Q1, we expect GAAP net revenue of $1.675 billion-$1.725 billion, cost of revenue to be $309 million-$321 million, and operating expenses of approximately $1.013 billion.

[Chris Suh, CFO at Electronic Arts]

This results in earnings per share of $0.76-$0.85 for the quarter. To conclude, EA delivered another record-year well ahead of our original guidance, driven by strong player engagement across our diverse portfolio of titles. Looking forward, we are capitalizing on this strength to invest in our future. We expect to outgrow the market, to show resilience through uncertain times, building on the foundation of live services and our broad portfolio to deliver growth over the long-term. Now I'll hand the phone back to Andrew.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Thanks, Chris. As we kick off FY23, we are investing for growth from a position of strength. With a portfolio of amazing IP, the best talent, and a growing network of highly-engaged players, we are scaling to deliver new experiences on more platforms across more geographies. Our total addressable market is expanding and secular trends are driving more consumption of interactive entertainment. Our games are deeply social and we will continue to build on our strengths as we invest to grow our biggest franchises to connect with more players in the future. We have a clear vision, a clear strategy, and we have a spectacular team ready to deliver in FY23 for hundreds of millions of players, viewers, and creators around the world. Now Chris and I are here for your questions.

[Operator]

Ladies and gentlemen, if you have a question at this time, please press star one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press the pound key. Again, that's star one to ask a question. Your first question comes from the line of Omar Dessouky with Bank of America. Please go ahead.

[Omar Dessouky, VP and Equity Research Analyst at BofA Securities]

Hi. Thank you for taking my question. It kind of looks like excluding the FX, you guys increased your guidance versus the mid- to high-single digits excluding the FX in Russia that is versus the high mid-single digits that you had communicated on the Q3 call. First of all, is that the case? Second, has it become more clear since the Q3 call that the churn among gamers, you know, who joined during COVID lockdowns has run its course and that average revenue per paying user will remain near the highs seen during the pandemic as 2022 unfolds?

[Chris Suh, CFO at Electronic Arts]

Great. Thank you for the question. I'll start with the first part first, and then I'll turn it over to Andrew and he can comment as well on the second part of your question. From a guidance perspective, your math is correct. Normalizing for the impact of the strengthening U.S. dollar, which we articulated was 3 points on net bookings as well as the impact of the decision taken in Russia. That effectively puts the equivalent guide more in the high single-digits equivalency, which is slightly above the signal that we gave in the last earnings call. It is indicative of how we finished the quarter with strong player engagement and we feel good about the outlook.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

As it relates to player engagement, and the value that we see from that over the course of time, I think what you've heard from us throughout COVID is that players sought out our games in the beginning for entertainment reasons, but they stayed deeply engaged in them beyond just entertainment. They really saw games as a means of deep social connection with their atomic unit of friends. This is that four or five friends that you spend a great deal of your social time with. What we have seen, even as we, you know, are moving past COVID, and that people are returning to work and returning to life and returning to school, is our engagement has continued to be very, very strong and in many cases across some of our franchises at record levels.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Given the level of entertainment that we're developing and delivering, given the value of social interaction as part of those experiences, we think this is going to be a continued driver for growth for us.

[Omar Dessouky, VP and Equity Research Analyst at BofA Securities]

Thank you. Thank you very much.

[Operator]

Thank you. Your next question comes from the line of David Karnovsky with JPMorgan. Please go ahead.

[David Karnovsky, Managing Director and Head of U.S. Media, Entertainment and Advertising Equity Research at JPMorgan]

All right. Thank you. Andrew, just on the, you know, the FIFA license, I was wondering if you could just discuss a little bit more the decision to forgo that, and how are you kind of thinking about potential risk, given the brand shift, but then also the upside, you know, in terms of how ending the license kind of frees you up for certain revenue, opportunities that in the past would have been restricted?

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah, great question. As you will have seen, you know, from our press release today and certainly I think FIFA have done some things on their own website. We've been working through this. We're very excited about the future of football. We have, you know, as you heard in the prepared remarks, you know, over 300 licenses that deliver the content and form the experience that we deliver to players that's most meaningful for them. We've got over 150 million, you know, players across unique accounts. When we think about the future of football right now, we really made this decision on the basis of being able to deliver experiences that our players wanted. They told us they wanted more modalities of play.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

They told us they wanted to see more commercial partners in the game that are representative and authentic to the broad global world of football. They're telling us they want us to move beyond just the core experience and really build out this digital football experience. They're telling us they want us to move really, really fast. As we move through this, again, we are deeply grateful of our relationship with FIFA for nearly 30 years and deeply respectful of the partnership. We've worked closely together as two organizations to ensure that we can deliver the biggest FIFA this year that we've ever delivered, featuring World Cup content from both the Men's World Cup and the Women's World Cup for the first time ever. We worked to do that because we believe that's important to our fans.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Beyond that, we're excited to work with our 300+ partners and all the new partners that we're going to have the opportunity to work with to deliver what we believe will be the greatest digital football experience available and sit at the very epicenter of football fandom globally.

[David Karnovsky, Managing Director and Head of U.S. Media, Entertainment and Advertising Equity Research at JPMorgan]

Okay. Maybe just to follow-up, I know you touched on it a little bit, but how do you think, you know, specifically about marketing the EA SPORTS FC brand and, you know, would there be initial bump in advertising costs or could you just mostly take a, you know, advantage of that lack of a license fee? Thank you.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah, I think it's a little early to tell yet. We're certainly being very thoughtful and deliberate about that. The important thing to understand though, is that as you travel around the world and you meet with players who really are deeply engaged with our game, for a player in the UK, the most important thing to them is the Premier League. For a player in Germany, the most important thing to them is the Bundesliga. In Spain, it's LaLiga and so on and so forth as you go around the world. What we're focused on right now is building very unique experiences for each of those fans in each of those markets. What you've seen today is many of our partners come out in support of our ability to do this for our fans.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Certainly anytime you change the name of a product, you must be very thoughtful, and we'll certainly have to, you know, think about marketing up front. What gives us confidence as we move into this next phase of growth is that we are working with the partners and the content that our fans love and relate to most directly in the markets in which they do it.

[David Karnovsky, Managing Director and Head of U.S. Media, Entertainment and Advertising Equity Research at JPMorgan]

Great. Thanks.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Thanks.

[Operator]

Thank you. Your next question comes from the line of Benjamin Soff with Deutsche Bank. Please go ahead.

[Benjamin Soff, Director of Equity Research at Deutsche Bank]

Hey, thanks for the question, guys. I wanted to dig into the mobile business a bit. You've got Apex on mobile coming out soon. FIFA Mobile rebound seems to be doing really well. You announced the new Lord of the Rings game and, you know, doing some other stuff on the sports side. Really the question is how you guys thinking about the mobile growth opportunity in general, and how has your outlook changed, if at all, since giving that longer-term growth target for the business last year? Thanks.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah, great question. I mean, we remain very excited about the opportunity in mobile. It continues to be the single biggest gaming platform in the world with a TAM of 3.5 billion players. That's just, you know, to have that kind of TAM access is just extraordinary for us as game makers, and delivering live services to that audience. We're seeing really good metrics around Apex Legends right now in test, and that will launch later this year. FIFA had its biggest quarter ever. I think it had a surge of 80% in users.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Lord of the Rings is coming from what has been our strongest mobile studio, Capital Games, who build these type of games that have done so well for us and have such an avid fan following. As we think about, you know, moving forward in mobile, we think that the brands that we have, the expertise that we have, you know, that we've built organically, internally, and that we've acquired through recent mobile acquisitions, represents, you know, a really strong opportunity for us over the long-term. Remember, when you launch these games, they last for 5+ years as live services. What you're seeing this year is, you know, 3 big launches for us in addition to our existing portfolio, which is incredibly strong. We're going to invest behind that for the long-term.

[Benjamin Soff, Director of Equity Research at Deutsche Bank]

Got it. Maybe just a quick follow-up on F1. I believe this upcoming title is the first game in the series that you guys-

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah

[Benjamin Soff, Director of Equity Research at Deutsche Bank]

you know, really were able to put your fingerprints on, since the acquisition. Can you talk a little bit more about your plans for the franchise, the types of innovation you're bringing to the game? Thanks.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

That team is an extraordinary team and has always built an incredibly high-quality game. That was really, you know, the impetus for the acquisition, to bring that into the EA SPORTS brand portfolio. F1, as you may have seen if you follow the sport, is an all-time high in fandom. We had an extraordinary season last year between Hamilton and Verstappen. We're seeing an incredible season this year with Ferrari, you know, leading, in the Constructors' Championship and Leclerc and others really pushing Verstappen.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

You know, in our world, if you get to a place where sports fandom is high and engagement in the core sport is high, and then you couple that with an extraordinary development team who have a history and track record of building extremely high-quality products, and then you layer in EA SPORTS' marketing power and global reach, we think there's incredible opportunity there, and we think that business is going to go from strength to strength.

[Operator]

Thank you. Your next question comes from the line of Eric Handler with MKM Partners. Please go ahead.

[Eric Handler, Managing Director and Senior Research Analyst at MKM Partners]

Good evening, and thanks for the question. I'm curious to think about the marketing investment that you're going to be spending on Apex Legends Mobile, and then you've got Lord of the Rings, and you're still in the relatively early stages with FIFA Mobile. Should we be thinking about the investment sort of negating a lot of the revenue that comes in from these titles and really you look to grow the player base in fiscal 2023, and then you think about margin expansion in fiscal 2024?

[Andrew Wilson, Chairman and CEO at Electronic Arts]

I think that's a good way to think about it. The reality is, you know, anytime we develop a game and launch a game, there is a combination of development cost and marketing cost to kind of get to launch and get to that critical mass of players and a sequencing of that. It's very different in mobile than it is in traditional console experiences. Traditional console experience, of course, you can spend on development for 2, 3, 4, in some cases, 5 years, and there's an exceptional amount of development spend up front. Then the marketing spend proportion of that is much lower. In mobile, the cost of development is lower to get to launch. The acquisition spend early on to supercharge a new launch is higher.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Remember, these are live services and what we're doing is we're driving a golden cohort at the beginning of the launch, and that cohort will continue to deliver return that we build on over time for the course of the next five+ years. Early on, you see margin compression in the context of mobile. Over the course of time, you see margin accretion and margin expansion, and these live services, you know, become global communities of players that continue to play, you know, for five+ years, in some cases as long as a decade.

[Chris Suh, CFO at Electronic Arts]

Maybe I could just add on to that, Eric. As you have a chance to go through the model and the guidance that we gave, you'll see that it's implied in that, in the guidance and the cost structure. To reiterate the points that Andrew made, we're excited about our opportunity in mobile. It represents an enormous TAM opportunity. We're excited about what we have in store for this year. It is a different margin profile, especially in the short-term. As Andrew pointed out, once we get to scale, we see great revenue and profit opportunity, and we're really excited about the opportunity ahead.

[Eric Handler, Managing Director and Senior Research Analyst at MKM Partners]

Great. Just as a follow-up, I believe you said, Andrew, 6 new sports titles this year. Wonder if you could give a little color on that. Are these mobile titles? Are these new PC console games? What can you tell us there?

[Andrew Wilson, Chairman and CEO at Electronic Arts]

It's the cast of characters that you would expect from us, plus F1. That's our FIFA product, that's NHL, that's Madden NFL, that's F1. We've got a new golf game. I'm trying to think now. You've caught me off guard. And Super Mega Baseball, which was an acquired property. Yeah. And that's across console, PC, and in some cases, mobile.

[Eric Handler, Managing Director and Senior Research Analyst at MKM Partners]

Great. Thank you very much.

[Operator]

Thank you. Your next question comes from the line of Drew Crum with Stifel. Please go ahead.

[Drew Crum, Managing Director of Equity Research at Stifel]

Okay, thanks. Hey, guys. Good afternoon. Want to drill down a little bit more on Apex Legends. You're lapping a 40% plus comp, but also launching on mobile. What are your expectations for franchise net bookings in fiscal 2023? Will you make any changes to the cadence of live services or content drops across the franchise now that you'll be on mobile? Thanks.

[Chris Suh, CFO at Electronic Arts]

Yeah, no, it's a great question. Thank you for the question. As you rightly pointed out, Apex Legends had a terrific year in FY 2022. We're across both financial metrics, but also all the player engagement data that Andrew spoke to. We're really excited about how we finished the year coming out of that with a lot of momentum. We do have profitable growth planned again in FY 2023. It's a large franchise for us. It's a big business. We'll see continued growth on that, on the console and on the HD side. In addition to that, with the Apex mobile launch, we're anticipating this to be one of the, you know, the most exciting launches that we've had on mobile, ever. The combination of that indicates a lot of optimism and strength for the Apex mobile or Apex Legends business all up.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

In terms of the cadence of content drops and experience updates and events, again, the Respawn team and the Apex team have demonstrated over the course of the last two-plus years an extraordinary connection with their community. They've been able to figure out exactly when and how to make drops and things that the community wants and needs. We don't have a hard and fast rule in terms of which drops will happen when. We really you know allow the team to work deep with the community. I think as the franchise continues to grow and as we move on mobile and launch and grow on a global basis, I think it's reasonable that over the course of time, there'll be more and more content launched into the world.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

A new season starting today, which off the back of a record season 12, we expect will continue to do well. I know Newcastle as the new legend is widely regarded as going to be one of the great legends inside the game experience.

[Drew Crum, Managing Director of Equity Research at Stifel]

Thanks, guys.

[Chris Suh, CFO at Electronic Arts]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Colin Sebastian with Baird. Please go ahead.

[Colin Sebastian, Managing Director and Senior Research Analyst at Baird]

Thanks, everyone. Good afternoon. Welcome, Chris. Maybe just a quick follow-up to the last question, first off. I guess there may be some changes to the release of Apex Legends going forward. Curious how you think that might impact engagement or, you know, each of the contributions from stories going forward. The other question is, despite these results, I wonder, Andrew, what you think the impact has been on growth from the persistent short supplies of consoles and GPU chips, et cetera. What's also factored in the outlook from that perspective. Thanks.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah. Let me touch on the first two, and then I'll let Chris take the outlook piece. You know, again, I think that each time the team releases new content, new events, we see growing engagement, and they've demonstrated an extraordinary ability to really understand the things that are going to drive ongoing engagement for our community. I wouldn't expect that we would see any decline in engagement with more content. Quite the opposite. I think as we go to more platforms, and we build out our engagement model over the course of time, I think we'll see a growing audience, and I think we'll see growing engagement. That has been our experience so far.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

In terms of, you know, supply chain shortages, again, we've just come off a record-year. You know, we beat on almost every measure, even in the face of what is almost certainly supply chain shortages around, you know, consoles and chipsets and graphics cards and these types of things. It's hard to know how much bigger that would be. I have to imagine with more consoles out there and more PCs and more graphics cards that our results may have been even better. But we're very happy with the results we had, and we look forward to, as supply chain issues start to ease and more consoles end up in the marketplace and more graphics cards and more PC availability, that more gamers will have access to higher-quality machines, and that ultimately will drive engagement for us.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

If you go back through the course of time, you know, at each platform transition and each technology evolution, the gaming TAM and the gaming community broadly has grown. I think this only represents upside for us.

[Chris Suh, CFO at Electronic Arts]

I'll just add on to Andrew's good summation. The resilience, you know, the live services business model, which was 71% of our business or over 71% of our business in FY 2022, and it'll grow as a share of our business next year, especially with the launches of mobile. From one standpoint, you know, we feel good about and that's all embedded into the guide that you heard us talk about at length. Specific to the console market, we are anticipating Gen 5 console units to be up year-on-year, and that will also be an added tailwind to the business, all in all.

[Colin Sebastian, Managing Director and Senior Research Analyst at Baird]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Andrew Uerkwitz with Jefferies. Please go ahead. Pardon me. Your line's now open.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Charlie, I think he dropped off the line, so we can move to the next one.

[Operator]

Sure. No problem, sir. Your next question comes from the line of Matthew Thornton with Truist Securities. Please go ahead.

[Matthew Thornton, Equity Research Director at Truist Securities]

Hey, good afternoon, Andrew and Chris. A couple interrelated ones, if I could. I'm going to ask a question that was asked earlier, but in a little bit of a different way. Since you guys talked about mid- to high single-digit bookings growth last quarter, as you've alluded to, there's a lot of incremental headwinds. So my first question is there anything that's changed in the slate as you think about fiscal 2023 versus kind of what you were thinking, 3 months ago? That's question one. Question number 2, the slate talks about a major IP in the Q4.

[Matthew Thornton, Equity Research Director at Truist Securities]

I'm just curious if there's a reason why that would fit better in, you know, a fiscal four Q as opposed to the traditional holiday quarter in Q3, where you typically might put a big piece of IP. Any thoughts there? It's just finally on, maybe, Andrew, you could talk a little bit about just the work from home transition to back to office, how that's playing into productivity and how that maybe gives you confidence that you can kind of release these titles because you do have quite a few in the back half of the year, including in four Q. I'm just curious your level of comfort with that based on what you're seeing in the productivity trends. Thanks, guys.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Okay. There was a lot in there.

[Matthew Thornton, Equity Research Director at Truist Securities]

It's like a three-part, three-parter.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

I think the first one is, do we anticipate slate change as an additional element as we kind of have got from Q3 through Q4? The short answer to that is no. We continue to believe our slate is strong. I think the second question was, we've got a major IP in the Q4 and why not do that in the holiday quarter? I would say two things to that. One is we want to get to the highest-quality games we possibly can. We're committed to quality. We're committed to giving our development teams all the time they need to build great games and deliver those to a global audience. Underlying that, I'd also highlight, though, that the nature of our business is changing.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

As Chris pointed out, 71% of our business is coming from live services. These traditional launch windows that have been so important in our industry for the longest time, you know, aren't as relevant now in a world where players are playing our games day in, day out, week in, week out, month in, month out. The combination of the changing nature of engagement consumption of our games and our deep desire to give our teams all the time they need to get to the best possible game experience really is what driving that Q4 launch. I think the last part of your question was around work from home and how is that looking? I would say, you know, it is. It's still early. We're seeing more and more people back into offices.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Again, there are still waves of COVID out there, and we're seeing some rising numbers in certain geographies. You know, good news is the severity of infection or the severity of symptoms from infection seems to be much lower than the initial waves and phases of COVID. I think that's good just for humanity broadly. Certainly, we're seeing a return to office kind of moving through its general iteration. In terms of confidence that I have in launching the games through the year, I have strong confidence, largely because having done this for two years, we launched more content than any other developer and publisher of video games through this time.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Our teams have demonstrated unbelievable tenacity and unbelievable wherewithal, and we've really harnessed the power of our platform technology to continue to deliver games even while working from home. As people come back together and we get to see more collaboration, I think things get easier. Even if that ends up being a little slower than we would hope, given the ingenuity of our teams, I still have strong confidence in our ability to launch our full slate of high-quality titles this year. I think that was all of them.

[Matthew Thornton, Equity Research Director at Truist Securities]

I think so. I think you got them.

[Operator]

Thank you. Your next question comes from the line of Mike Hickey with Benchmark Company. Please go ahead.

[Mike Hickey, Senior Analyst of Equity Research at The Benchmark Company]

Hey, guys. Andrew. Hey, Chris. Great results, guys. Thanks for taking my question. First question, I guess just on the economy here. It's been a while, I think, Andrew, since your business has sort of been tested with a recession. Whether or not we go into a recession, who knows? How do you think about sort of your player community holding up now that you're pretty much a service versus premium, digital versus physical? Would you imagine you would sort of mix shift if we do hit a recession here or pull back and discretionary spend towards free-to-play? Just sort of, I guess, the takeaway to put some takeaway on your player community and how you factor that into your guidance. I'll follow-up with Chris next.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah. It was a little jumbled, Mike. I'm sorry. I think that the gist of the question was with the macroeconomic climate out there, and I think you mentioned the notion of recession, how do we think about that? How do we think about building our plan? And probably specifically your thinking around OpEx. I think, you know, and Chris can weigh in here as well. You know, we've been very thoughtful about this as we're embarking on the year ahead, and certainly there are people way smarter than us, who are kind of predicting what will be the macroeconomic outcome over the course of time. Here's what we see. We see we're coming out of a year with record performance.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

We're seeing, you know, our network grow dramatically and engagement grow dramatically. We're seeing our games used not just for entertainment, but also for social interaction and social connection. That gives us confidence in the underlying fundamentals of our business over the long-term. As we look back over previous times where there may have been challenged consumer spending, our industry and our games specifically have actually done very well for two reasons. One, entertainment really is a fundamental human need. Two, the form of entertainment that we deliver is extremely high-value to consumers, given that, you know, you get thousands of hours of engagement when you play one of our games.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Our expectation is that even in an environment of macro challenge, that our industry and our games will continue to do well. One of the other things that we have, you know, when we've gone back and really looked at this though, and you study it, is you discover that companies that can invest from a position of strength going into an environment like the one seemingly we're moving into, actually benefit disproportionately as you come out of that. I think if you take in the fact that we have, you know, a growing network, growing engagement, record performance, our games fulfill both entertainment and social interaction. That if you look back in history, you know, our industry's performed very well at times like this.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

When you take the strength of our business and our ability to invest against new titles this year, as well as titles we developed for the out years, we feel like we've put ourselves in a really strong position, even if we were going into a challenging macro headwind. With that being said, we have built flexibility into the plan. You should know that we'll be extraordinarily disciplined around cost as we move through this, and that should there be something unforeseen to us that we have levers in our model that will allow us to adjust. But we do believe it is behooves us to invest from a position of strength as we go into this market.

[Mike Hickey, Senior Analyst of Equity Research at The Benchmark Company]

Thank you.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

I think well, I think that was good.

[Mike Hickey, Senior Analyst of Equity Research at The Benchmark Company]

Hold there. Okay, sounds good. Second question. Microsoft, hope you can hear me. Microsoft and Sony were sort of flirting, or at least that was the rumor, flirting with the idea of adding advertisements into free-to-play game experiences. Maybe as a way to sort of help developers monetize their player community. Of course, you guys you go way back to Burnout Paradise as sort of infamous for trying the idea on the billboards in that game. Obviously this idea has created a lot of debate within the player community, but just sort of curious your thoughts on whether or not ad monetization in free-to-play games is something that you think can be meaningful and then how you sort of balance that with the player experience. Thanks, guys.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah. For us, I think you finished there where we start, which is the player experience. We want to ensure that the player experience is the best possible player experience that we can provide. That's why you've seen us kind of test various models over the course of time. Some have continued and some we have stopped on the basis of really upholding the best possible player experience we can. What we've seen generally though in entertainment media and even in games, particularly in mobile games right now, you see that there is a place for advertising when done right. There is a portion of the community that when given the choice, will participate in advertising where it benefits their gameplay experience.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

I think we've learned some of this from Glu as we brought Glu to our organization and we've seen this across the industry. You should expect that we would continue to kind of test different things, ensuring first and foremost that we uphold the best possible player experience. Where there is an audience that given the choice would like to engage with advertising, they have the ability to do so, we want to make that available to them.

[Mike Hickey, Senior Analyst of Equity Research at The Benchmark Company]

Thank you.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Thank you.

[Operator]

Thank you. Next question comes from the line of Mario Lu with Barclays. Please go ahead.

[Mario Lu, Analyst at Barclays]

Great. Thanks for taking the question. The first one's on the FIFA title this year. I believe you guys are already testing cross play support in FIFA 22. I presume that it may come in 2023. What is the impact of cross play potentially in terms of player engagement? Similarly, can you remind us what the magnitude of uplift was from including a World Cup mode within FIFA?

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Let me start on the World Cup mode with FIFA. Again, in the context of live service, we're always balancing the investment of time and the investment of dollars from the community. At any given point in time, based on what's going on in the world of that game, and in this case, in the world of football and in the gameplay community, we will look to leverage new content and new events and new experiences, either to drive greater engagement and provide new interesting things for players to do, or it might be a monetization opportunity. You might recall the last time we did the World Cup, it was an extraordinary engagement opportunity.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

I don't have the numbers at the tip of my fingers, but if I remember rightly, we brought 12 or 13 million people back into the game who had lapsed out of the game through World Cup content, and drove incredible engagement through the event. Then, of course, as part of the ongoing live service, continue to grow the business over the course of time. We will think about it this year in the same context. We're always thinking about our player community and always thinking about the balance between the investment of time and the investment of dollars, all in service of a more positive and more immersive, and a more entertaining player experience. In terms of the value of cross-play, I don't think we have any specific data on that yet out of FIFA.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

In other franchises, it's certainly where you get greater liquidity in the franchise, and friends can play with each other across devices. That's always a good thing for players. Remember, in our FIFA experience, which has, you know, 30+ million people playing across console and PC, it's already a highly-liquid community, and every platform already has more than enough players to sustain the ongoing player experience. Certainly, as we think about the future of all of our franchises, we wanna get to a place where the entire community can play together, and that will be part of our drive as we move forward.

[Mario Lu, Analyst at Barclays]

Great. Thanks, Andrew. Just one on Battlefield. I'm just curious if there's any updates on that franchise. I know you guys previously mentioned, you know, you were willing to kind of invest more into the franchise in the long-term, but has that mindset changed in the past few weeks given the, you know, lack of resurgence from the latest update? Thank you.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

No. Again, we take a long-view here. This is one of the great franchises in our industry, built by one of the great teams in our industry, and our expectation is that we'll continue to grow and be a really important part of our portfolio, you know, for many, many years to come. We've got, you know, incredible leadership over that team now. They're rethinking the development process from the ground up and really using kind of the Vince Zampella Respawn model of get to the fun as quickly as possible. They've been doing thousands of updates for the community, working on quality of life and really getting the core game right. I think there's still more work for us to do there, and the team is committed to doing that work for the community.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Beyond that, once we get to a place where we feel like we're in the right place with the core experience and with the core game, then you should expect us to invest and grow beyond where the game is at today.

[Mario Lu, Analyst at Barclays]

Okay. Thank you.

[Operator]

Thank you. Your next question comes from the line of Doug Creutz with Cowen. Please go ahead.

[Doug Creutz, Managing Director and Senior Research Analyst at Cowen]

Hey, thanks. I think in the last call, you indicated that the Battlefield mobile game was close to going into closed beta. At least at one point you seemed to indicate it might be a fiscal 2023 launch. Can you just kind of update on where that is, how the closed beta went, and how you're feeling about timing for the title at this point?

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Yeah. Right now, I think we're looking at going into further testing at the end of May, and then subject to the metrics and the data that we see and the engagement we see, you know, we might look toward the end of this year, beginning of next year for a global launch. But remember, in mobile, it all really comes down to the tuning and balancing once we go into kind of that closed beta phase. We don't have any money in FY 2023 right now against that title. So if it was to launch in a year, that would be an upside potential for us. We wanna give ourselves the opportunity to ensure that the game has all the soft launch and closed beta that it needs in order to tune and balance.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Having played the game, I can tell you, I think that, you know, we're excited for the potential.

[Doug Creutz, Managing Director and Senior Research Analyst at Cowen]

Great. Thank you.

[Operator]

Thank you. Your next question comes from the line of Jamie Bass with Berenberg. Please go ahead.

[Jamie Bass, Analyst at Berenberg]

Hello, guys. Thanks for taking my questions. I've just got a couple if that's okay. Firstly, you were talking about the sort of positive, sort of metrics within mobile coming back to the levels they were at, pre-IDFA. Two things on that. Firstly, could you give sort of an indication of what your expectations are for the key, core franchises as in not bringing in Apex mobile and the stuff you already have within the mobile franchise? And then, second question is on, the more boring topic on developer cost inflation or wage inflation. Do you have sort of an outlook for what you're expecting this year in terms of new hires, whether you're expecting a certain percentage in terms of how much extra you need to pay to bring on new developers? Thank you.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

Maybe I'll start with the second one, and then we'll move back to the first one. You know, certainly I think that competition for great talent has always been incredibly high in our industry. That's no different now. When we think about hiring new talent and we talk to candidates, they really make employment decisions based on four key vectors. What is the work they're going to do? Who are the people they're going to do it with? Of course, what is going to be the compensation and, you know, their opportunity to learn and grow. As we lean into hiring, we really lean into all four of those vectors and try and create a culture where this is a great place to make games.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

We were able to hire at record numbers in FY 22, even amidst what was already a very competitive marketplace. We expect to continue hiring. I think that, you know, we've been recognized by a number of surveys as an extraordinary place to work, and we've really focused on the culture of our company, and ensuring that we are a great place to come and create games. That doesn't mean we won't be challenged in the marketplace. I think it's going to be more and more challenged, but so far, we have not had trouble hiring incredible talent, and we brought in some amazing new creators and people across our business, quite frankly, through FY 22.

[Chris Suh, CFO at Electronic Arts]

On your question specifically, as I commented in my comments on the prepared remarks about the IDFA changes, it is something we're still working through. We have seen some positive movement toward reaching real app levels pre-IDFA, and we feel optimistic that we're sort of through the tougher part of it and we feel good about the outlook from here.

[Andrew Wilson, Chairman and CEO at Electronic Arts]

That brings us to the end of the call today.

[Operator]

Could I just.

[Chris Suh, CFO at Electronic Arts]

Oh, okay. Go ahead. Sorry.

[Jamie Bass, Analyst at Berenberg]

Well, I'll catch up with you afterwards, Jerry. I was just gonna say, that brings us to the end of the call today. Thanks everyone for your time, and we'll look forward to speaking to you in the next quarter. Thank you so much.

[Chris Suh, CFO at Electronic Arts]

Thank you all.

[Operator]

This concludes today's Conference Call. Thank you all for participating. You may now disconnect.

Participants

Executives

• Andrew Wilson, Chairman and CEO
• Chris Evenden, VP of Investor Relations
• Chris Suh, CFO

Analysts

• Benjamin Soff, Director of Equity Research at Deutsche Bank
• Colin Sebastian, Managing Director and Senior Research Analyst at Baird
• David Karnovsky, Managing Director and Head of U.S. Media, Entertainment and Advertising Equity Research at JPMorgan
• Doug Creutz, Managing Director and Senior Research Analyst at Cowen
• Drew Crum, Managing Director of Equity Research at Stifel
• Eric Handler, Managing Director and Senior Research Analyst at MKM Partners
• Jamie Bass, Analyst at Berenberg
• Mario Lu, Analyst at Barclays
• Matthew Thornton, Equity Research Director at Truist Securities
• Mike Hickey, Senior Analyst of Equity Research at The Benchmark Company
• Omar Dessouky, VP and Equity Research Analyst at BofA Securities