Electronic Arts Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2024

There are 10 speakers on the call.

Operator

Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Electronic Arts Third Quarter Fiscal Year 20 24 Earnings Conference Call. I would now like to turn the conference over to Ms. Katie Burke, Director, Investor Relations.

Speaker 1

Thank you. Welcome to EA's Q3 fiscal year 2024 earnings call. With me today are Andrew Wilson, our CEO and Stuart Canfield, our CFO. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted detailed earnings slides to accompany our remarks.

Speaker 1

Lastly, after the call, we will post our prepared remarks, an audio replay of this call and a transcript. With regards to our calendar, our Q4 fiscal year 2024 earnings call is scheduled for Tuesday, May 7. As a reminder, we post the schedule of upcoming earnings calls for the fiscal year on our IR website. This events and results may differ materially from our expectations. 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.

Speaker 1

Electronic Arts makes these statements as of today, January 30, 2024 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. Please see our earnings slides for further information. 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.

Speaker 2

Thanks, Katie. It was a strong Q3 as we continue to entertain hundreds of millions of players and fans around the world. Our exceptional teams created high quality games and experiences across our broad portfolio that drove deep engagement and record live services. This quarter, 2 of the world's most celebrated interactive entertainment experiences EA Sports FC and EA Sports Madden NFL delivered phenomenal strength as sizable drivers of long term growth. We are launching amazing games and experiences that entertain massive online communities, create blockbuster interactive storytelling and harness the power of community in and around our games.

Speaker 2

EA's Q3 results are a great example of our execution across our strategy. The FC platform is Thriving at the center of the action, fandom and culture of the world's game. The launch of EA SPORTS FC24 has been a great success and has once again Outperformed our expectations. Players are connecting, competing and celebrating global football with their friends, driving strong engagement across FC's multi experience ecosystem. In Q3, players dove into ultimate team driving double digit net bookings growth and delivering the franchise's biggest net bookings week ever.

Speaker 2

FC Mobile also generated deep engagement with daily active users up by 29% year over year, while FC Online grew new players by 20% year over year. In calendar 2023, Madden NFL was best selling sports game in North America and continues to grow. Madden NFL 24 is engaging more players year over year through new innovative gameplay features and compelling live services. In Q3, net bookings grew and engagement with Ultimate Team increased 19%. Madden Mobile also saw an increase in players during the quarter, generating double digit growth across the community.

Speaker 2

Our business is gaining momentum as our communities continue to grow and the definition of play rapidly expands to include watching gameplay, creating user generated content and connecting with friends and families in and around beloved IP. There are billions of players around the world and this number is expected to increase as younger generations choose gaming as their number one form of entertainment, generating incredible opportunities for us to engage and deliver new experiences. The evolving world, unfolding stories and rich characters our live services are deepening players' relationship with our IP and broadening the global appeal of our portfolio. To further entertain our communities, we are building more ways for them to play, watch, create and connect to generate growth and longevity in our biggest franchises. The Sims franchise is the definitive life simulation experience, offering its multi generational community incredible ways to Connect, create and express their individuality.

Speaker 2

During calendar 2023, players have spent an Downing 1,800,000,000 hours in The Sims 4, a nearly 30% increase from the prior year. We remain committed to the global growth and innovation of this franchise. We're focused on delivering what the community wants most from ongoing new content and game modes for The Sims 4 to the social innovation expansion and connection in our future Sims release. Millions of passionate Fans continue to come together through the nonstop action of Battlefield. The Battlefield 2,000 and forty two community continues to grow with total players up 17% year over year and season 6 live services driving strong engagement with weekly average users up 37% year over year.

Speaker 2

Our team is working hard to deliver for the community with increasingly engaging live services. Like the recent announcement of season 7 with new maps, weekly missions and much more. In addition, we are making investments in the future of the franchise. Our exceptional teams from multiple world class studios working with cutting edge frostbite technology are building an expansive community focused Battlefield universe for fans all over the world. As a category leader with millions of loyal fans, we are looking forward to celebrating the 5th anniversary of Apex Legends.

Speaker 2

Over the past few months, we have listened closely to our community and have deployed new features, new styles of play and new content. We have also implemented tools to better understand day to day game performance. In Q3, our new modes drove improved engagement And the early impact of our new content in the current quarter is promising. To generate future growth, we are focused on entertaining core players and engaging new players by investing in geographic expansion, innovating in the game economy and making it easier than ever for players to jump into our gameplay. Turning to FY 'twenty five, we will deliver even more excitement and entertainment through an expanded portfolio of connected ecosystems.

Speaker 2

Industry leader EA Sports will launch a strong core slate of titles and always on live services to grow our sports business as a global community and drive value year after year. Our journey building FC, the world's largest interactive platform for global football fans will continue with accelerated gameplay innovation, More social connection and new brand collaborations to deliver even more value for players. Our team is working with an incredible roster of partners are just getting started with FC. We are well positioned to grow this platform as a cultural phenomenon. The momentum in Madden NFL will continue with events and experiences tied to the biggest moments in the sport alongside deeper investments in this ecosystem, including leaps in gameplay and deeper fan immersion.

Speaker 2

In addition to the meaningful advancements in Madden, we are bringing back fan favorite EA Sports College Football for the first time in over a decade. Looking further ahead, As more people spend more time playing and connecting in and around our titles, we see incredible potential for growth. Within our online communities, We are expanding blockbuster storytelling through deep rich characters and new story modes to deliver bigger, broader games and live services. Connected experiences offer new cutting edge ways to engage and inspire players and can unlock future innovative growth opportunities. Over the coming years, we expect accelerated growth in our business.

Speaker 2

Our long term outlook coupled with secular tailwinds drives further conviction in our strategy. By aligning our priorities and investments with our greatest opportunities, we can make the biggest impact and drive long term value in service of our people, our players and our shareholders. Now I'll hand the call over to Stuart to provide additional details on our business.

Speaker 3

Thanks, Andrew, and good afternoon, everyone. For the Q3, we delivered net bookings of $2,370,000,000 up 1% year over year or 2% in constant currency in line with our expectations. Strength in our live services businesses, particularly EA Sports FC Ultimate Team was partially offset by some softness in full game. Live services net bookings grew to a record $1,710,000,000 in Q3, up 3% year over year or up 5% in constant currency, exceeding our expectations as we continue to drive healthy engagement and bring new players to our franchises. Full game net bookings of $654,000,000 was down 5% year over year or down 4% in constant currency versus a high prior year comparable that included the World Cup event.

Speaker 3

On a trailing 12 month basis, Total net bookings was up 8% year over year with life services contributing $5,600,000,000 or 73% demonstrating the resilience of this evergreen business model. Building on the strong momentum from our launch at the end of Q2, EA Sports FC again exceeded expectations as EA Sports FC Ultimate Team and FC Mobile delivered exceptional double digit net bookings growth against the World Cup comparable in the prior year. Our global football business net bookings grew 7% year over year as our teams continue to drive strong retention of our core player base through the FC brand transition. EA SPORTS Madden NFL also saw another strong quarter with net bookings up 5% year over year, highlighted by strong engagement trends across full game, ultimate team and mobile. Additional highlights from the Q3 included new releases of EA Sports UFC, NHL and World Rally Championship, which contributed to further expanding the aggregate fandom and strength of our EA SPORTS community, creating additional value added services in one of the largest sports brands and platforms in the world.

Speaker 3

In a highly competitive quarter, Apex Legends did not meet our expectations as our teams continue to learn and iterate with each new season and event. In the past few weeks, our recent crossover promotion showed early promising signals delivering 2 of our highest net bookings days over the fiscal year. With season 20 launching in February, Our teams will deliver more innovation as we continue to build for the long term. We remain committed to Apex Legends, a proven franchise with loyal fans, and we'll continue to invest in opportunities to drive new growth points as we build and expand the franchise over time through engaging a broader base of players. Moving to our GAAP results.

Speaker 3

We delivered net revenue of $1,950,000,000 up 3% year over year. As we continue to operate with focus and discipline, operating expenses were favorable to our expectations, also benefiting from some phasing of spend to Q4. On a year over year basis, operating expenses were up 3% driven primarily by incremental marketing spend as we invested to support our titles and the EA SPORTS FC transition through the critical holiday season. Our GAAP earnings per share was $1.07 up 47 percent year over year. Operating cash flow in the quarter was 1.26 $1,000,000,000 up 13% year over year.

Speaker 3

On a trailing 12 month basis, free cash flow was a record $2,160,000,000 And we returned $376,000,000 to shareholders through dividends and our ongoing share repurchase program. We are entering the final quarter of FY 'twenty four well positioned to deliver on our commitments for the fiscal year. With our strong business performance year to date, our unrivaled portfolio of IP and our consistent execution in our core life services business. Even in an incredibly competitive market, We are poised to deliver growth in net bookings consistent with what we outlined at the beginning of the year. At the same time, we are tracking to deliver higher levels of underlying profitability record free cash flow.

Speaker 3

We remain deliberate and focused around the prioritization and allocation of resources across our teams and portfolio as we make progress against our long term strategy to drive durable growth, strong cash flow and shareholder returns. Turning to our Q4 outlook, I'd like to start by sharing a few key considerations. 1st, as a reminder, Our Q4 net bookings is impacted by timing, including releases of our full game and content offerings in the prior year. 2nd, we expect moderated growth in our EA Sports FC franchise as we lap record prior year performance. For the full year, we now expect EA SPORTS FC net bookings to grow mid to high single digits excluding FX.

Speaker 3

3rd, we continue to take a measured approach to Apex Legends in its largest quarter of the year as we introduce new modes of play and content offerings. And finally, we expect impact from FX to be minimal as the benefit from more favorable currency exchange rates is offset by hedging gains from the prior year. As a result, we expect net bookings of 1.625 to $1,925,000,000 down 16% to down 1% year over year, including approximately 8 points of impact from the timing noted earlier. We expect GAAP net revenue of $1,625,000,000 to $1,925,000,000 and cost of revenue of $360,000,000 to $410,000,000 We expect operating expenses of 1.125 to $1,205,000,000 including a $70,000,000 impairment charge of certain acquisition related intangible assets. This results in GAAP earnings per share of $0.20 to $0.68 for the 4th quarter.

Speaker 3

Before handing back to Andrew, I'd like to take a moment to share some early perspective on our multiyear growth objectives. EA is in an advantaged position to lead the future of interactive entertainment with ongoing secular tailwinds and structural shifts within the industry further amplifying our strategy. Our long term financial framework is founded upon creating value for our shareholders by accelerating growth, delivering forward operating leverage and increasing cash flow. In executing on our strategy, we expect to scale operating leverage through the following growth levers: 1, expanded player acquisition, engagement and retention 2, highly accretive digital and live services 3, blockbuster new releases from our development pipeline alongside compounding growth across our core franchises and 4, discipline and focus on aligning our cost structure to invest in support of our strategic growth opportunities. As we look ahead to FY 'twenty five and more specific guidance in our upcoming Q4 earnings call, I wanted to share some initial considerations.

Speaker 3

Assuming minimal impact to our results from FX, we expect low single digit net bookings growth, reflecting continued execution in our core businesses in a lighter release late year. And excluding any impact from future share repurchases, we expect mid to high single digit growth underlying profitability. Looking beyond FY 'twenty five over the next couple of years, we expect our net bookings growth to accelerate, bolstered by our portfolio of industry leading IP. Compounding growth within our core sports franchises, New content and engaging experiences across our massive online communities and iconic new releases like Battlefield Sims and other in development titles provide the inflection point that fuels net bookings growth and increases underlying profitability. And we expect to continue to deliver meaningful operating leverage and drive increased cash flow conversion even as we continue to invest to support our strategic objectives.

Speaker 3

In summary, with our incredible talent, Industry leading IP and technology, global and growing communities of fans and our focus and discipline around our strategic objectives, We are confident in our ability to continue to deliver on our long term growth commitments and drive value for our players and for our shareholders. I look forward to sharing more over the coming quarters. Now I'll hand it back to Andrew.

Speaker 2

Thanks, Stuart. I'm inspired by the opportunities ahead as we continue to execute our long term strategy. Our mission to inspire the world to play is evolving and Beyond the traditional bounds of play. Technological advancements are powering creativity and innovation, transforming what we can deliver. We are positioned to bring bigger, broader games and experiences to an even larger global audience in the coming years.

Speaker 2

Our awesome teams, industry leading technology, world class IP and global network of players position EA as a leader of the future of entertainment. Now Stuart and I are here for your questions.

Speaker 1

Thank you. Brianna, we're ready for our first question.

Operator

Your first question comes from the line of Andrew Urquowitz with Jefferies. Please go ahead.

Speaker 4

Thanks for taking my questions. One tactical, one long term. On the tactical one, it looks like the Q4 and full year guidance ranges are pretty wide, relative to what you normally do. Just curious, 1, if that's correct? And 2, why is that when it seems like a lot of live services is outperforming?

Speaker 3

Andrew, this is Stuart. I'll take that. Yes, first of all, the range As we look forward, we'll continue to be broader in this case in the quarter in part for two reasons. 1, it's a more dynamic quarter for us as you referenced on our core live services. And the range is there that reflects the both strength and opportunity we see.

Speaker 3

So we're slapping a record World Cup comp for FC, Analysis of fiscal high quarter for Apex. The second part I'd also flag is that as a reminder on the prepared remarks is that we have 8 points of headwind as well from timing of Content released in the prior year. So hence the spread between the top and the bottom is based around the biggest dynamic services that we have in the quarter, particularly FC and Apex.

Speaker 4

Got it. That's helpful. And then I appreciate you giving the color on the forward years. On the operating leverage, Could you just maybe walk us through a little bit or give us additional color on the primary drivers there? Is that more live services from games like Sims or Skate eventually or is that just naturally Operating leverage from the fact you guys don't capitalize costs, just kind of help us out understand that dynamic a little

Speaker 5

bit better. I appreciate it. Thank you.

Speaker 3

Yes. Let me start with this. Let's take a look at sort of the business over the longer term. We're laying out that overarching framework is kind of grounded in 3 pieces, accelerating growth on the top line, expanding leverage on the bottom and increasing cash flow. We're looking at that through a couple of different lenses.

Speaker 3

So one is we do expect to continue to drive compounding growth across our core franchises. Plus we expect to release from our pipeline that's been in development. And both of those will be bolstered by expanded player acquisition, engagement and retention. As you know, our live services make up almost 3 quarters of our business, which highlights the evergreen nature of that business model and thus the ability to drive compounded growth on those franchises the future. New releases are the 2nd part and they're an important lever for us on that multiyear growth journey.

Speaker 3

And we're really flagging through them the long term journey. They'll create Some non linearity in that growth, in terms of how we accelerate through the late years depending on timing around that pipeline. Additional context would be that as we continue to drive through live service and we see greater digital, we get far more accretion through that mix. We're also continuing to be really focused around getting leverage and scale out of OpEx in terms of our cost structure to drive growth. We think about those four pieces, core compounding growth across our current core business and live services, a more digital nature around that drives accretion and scale.

Speaker 3

Add to that the new releases that come through the pipeline and ongoing management of cost to ensure that we're investing for the future, will ultimately provide leverage over the long term for us.

Speaker 5

Got it. Thank you. Appreciate the color.

Speaker 1

Brianna, next question please.

Operator

Our next question comes from Matthew Koss with Morgan Stanley.

Speaker 6

Hi, everybody. Thanks for taking the questions.

Speaker 7

One would just be on some recent changes we've seen on App Store fees in Europe for Apple specifically. I guess any early learnings there, any reflection on the possibility that you could see upside to gross margins for your mobile game business at least in Europe? Is that an option that You would be interested in, because I know it's an opt in thing for game publishers. That's point 1, question 1. Question 2, just beyond college football as we get a little bit closer to release, Can you do anything to help scale the opportunity for everyone and sort of think through what is incremental versus what might come from the existing Madden customer base.

Speaker 7

Thank you.

Speaker 3

Hey, Matt. So I'll quickly touch on the Apple 1 first. Yes. Once you're aware of the intentions to update the European App Store tied to their fees, we're still actively reviewing of those updates and sort of working to understand potential implications to our business and any changes that may flow through from a gross margin perspective. As we gain more insight understanding, we'll be able to provide a more update sort of next quarter in terms of how that might math through for us and impact gross margin, but no updates or reflection of that at this point?

Speaker 2

And on college football, our expectation is it will be additive. As we think about Madden, Madden is performing incredibly well this year. As we said in our prepared remarks, the biggest game the biggest sports game in calendar year 2023, we're seeing increased engagement in the game and increased monetization in Ultimate Team as part of that. The team is continuing to invest meaningfully into the modes of Madden, the expansion of Madden as a product. And certainly, as we look at the NFL broadly and the fan base continue to grow incredible season we're having this year.

Speaker 2

Our expectation is that we will invest behind Madden and grow Madden and that what college football represents as a game That's been 10 years in the waiting for our fans is that there's incredible amount of pent up demand and we expect that to be additive to the ecosystem. And over the broad course of time, the way our team thinks about this is how do we really expand the football community in this country and internationally through a combination of both Madden and College that we think will be both complementary in gameplay, but overall additive to the ecosystem.

Speaker 5

Great. Thank you.

Speaker 1

Thank you. Next question, please.

Operator

Our next question comes from Chris Scholl with UBS.

Speaker 6

Great. Thanks for taking the questions. You mentioned in the press release that you're prioritizing investment the largest opportunities for multi year growth. I appreciate you're looking to drive growth across the portfolio, but which franchises In particular, do you see the most incremental opportunity as you look out into fiscal 2025 beyond? And then we've also seen some new developments and announcements from your peers around subscription gaming.

Speaker 6

Can you just remind us how you're thinking about the role of subscription gaming to your business and what traction you're seeing with EA PLAY and how do you balance making content available on your platform versus 3rd parties? Thanks.

Speaker 2

Yes, great question. Thank you. 1st and foremost, I would go back to as a core entertainment company, It is always important that we are developing and investing in new IP to grow the future pipeline opportunity, that optionality that Stuart referred to earlier. And we have the strongest pipeline I think we've had in many, many years

Speaker 3

as we

Speaker 2

go into those out years in terms of both our core IP and new IP. If we look at the trailing 12 months, both in terms of engagement and monetization. What we do see, however, is that the biggest games are these games that really entertain and engage massive online communities. And these are existing franchises that either evolve on a month by month cadence or evolve with annual releases plus live services. And so as we think about the foundation of growth for our business, we think about FC.

Speaker 2

Again, this was the 1st year of FC branding. What we've spoken about in the past few quarters is having that FC branding and partnering more closely with the core leagues in territory gives us more growth opportunities than we believe we ever had before. It is building around Madden NFL and expanding a broader college football base, But it's also investing in the Sims and in Apex and in Battlefield and ultimately some of those as we go down through the next coming years. And so While we will continue to invest meaningfully behind new IP and we will be thoughtful and focused in those investments, we see significant opportunity based on how Communities are coming together in games around our biggest franchises, FC, Madden, Sims, Battlefield, Apex, And we will work meaningfully to expand those over the coming years. And then on subscription, remember, we have been early in subscription as a company.

Speaker 2

We have EA PLAY as a subscription that exists across platforms. It is part of the Game Pass Ultimate service on Xbox Live as well. I think that we believe as we look forward That subscription will be a meaningful part of our industry over the course of time. It hasn't really translated in the same way that a linear television or movie subscription has or a music subscription just because of the nature of engagement in our content relative to those other mediums. However, as we think about the future, we do believe there is an opportunity to fundamentally disrupt how households consume content broadly.

Speaker 2

As we look at leaders in the space like Netflix and then leaning into games, as we listen to the performance of Warner Brothers' games division And their conversation around how that might feed into their broader subscription over time, we think we're in an incredibly strong position To continue to lead on subscription, at least as it relates with interactive because of both the depth and the breadth of our portfolio, which as we look at our portfolio, we believe it's unrivaled in the industry and spans across many genres, including sport, which of course is a meaningful driver of entertainment value in the coming years.

Speaker 6

That's very helpful. Thank you.

Speaker 1

Thank you, Chris. Brianna, next question please.

Operator

Our next question comes from the line of Eric Handler with Roth MKM.

Speaker 2

Good afternoon. Thank you for the question. Andrew, I wonder if you have you ever thought about taking all of your essentially siloed Sport communities and thinking about a way to bring them all together so that Hockey fans can talk to soccer fans or football fans talk to UFC fans. And that way you can build a huge community around that where you could then layer in various highlight clips of real world games and e commerce, Just sort

Speaker 8

of create, for lack of

Speaker 2

a better word, a metaverse, given how massive your community is. Incredible question and also very insightful. And certainly, as you think about our network, which is well over 700,000,000 Right now, about half of that interact with our sports games. And so as we think about our sports community, It is almost certainly one of the largest collective sports communities on the planet. And as we think about EA Sports as a brand, We know from brand research around the world, it's also one of the most recognizable and recognized sports brands.

Speaker 2

And as we think about emerging generations, Gen Z and Gen Alpha, for many of them, their first relationship with sports comes through their relationship with the leagues and teams and sports they love as a result of their interaction with their EA Sports products. And so what we know to be true is right now as we think about our players, they spend on average about 90 minutes a session inside one of our games. They then leave that that game experience where they've been deeply connected with their core friend unit, and they go and they talk about that experience on another platform, And then they go and create content about that experience on yet another platform. And then finally, they go and watch that content on another platform. We do believe we have a meaningful opportunity, over the coming years to actually harness the power of that community both inside and outside of our games, which is really the 3rd pillar of our core strategy and will be led by our EA Sports brand.

Speaker 2

So again, a super insightful question, nothing to announce today, but you should imagine that we see the very same thing. We see an incredible opportunity by virtue of the breadth and depth of our sports portfolio, The breadth and depth of our sports relationships around the world, which I think are unmatched on a global basis, and certainly the size and magnitude of our sports gaming community and the relationship they have with their favorite sports through us, but more importantly, the connections that they're making with their friends as a result of the time they spend with us. We think there's a meaningful opportunity for us to expand on that both inside the game, and we're seeing that already in our core products like FC and Madden, but also outside the game. And some of the starting points of that are some of the deals that we've done with our licensed partners that do allow us to bring highlights and other non gaming content into the ecosystem broadly. So, best I can say is watch this space.

Speaker 2

Thanks. Just as a quick follow-up, wonder if you could just give a little bit of an update about sort of the state of the mobile industry, What you're seeing, you did mobile bookings were up modestly in the quarter. Do you think you've reached stabilization and You can expand from here. How are you what are you seeing in the market?

Speaker 3

I'll just go I'll give a quick position on the financial frame that you just talked to. So yes, sort of in Q3, we actually tracked up 5% at constant currency when you exclude lapping of Apex in the prior year. We did see improvement sequentially. We saw double digit improvement between Q2 and Q3 Our overall mobile portfolio, obviously, you talked to saw the strength that we called out in particular around FC within that mix. We saw double digit growth year on year as we even entered a World Cup comp.

Speaker 3

In terms of how we think about mobile as we move forward, I think we've been very clear on Freshie that we're focused on, which continue to lean into the success we've seen around FC and our broader ecosystems as in both an entry point and expansion for us in terms of players. We'll continue to lean and focus on those across our biggest opportunities through whether it's FC, Madden, Sims, Battlefield and beyond. 2nd part is we continue to look for the biggest hits in IP and opportunity that can stand alone on mobile itself, Wrapped inside of an incredibly disciplined approach as we've focused on driving profitability across this platform to some of our more historic levels versus the past. So that are 3 kind of profiles we expect. So yes, quarter over quarter sequential improvement, Strength overall year on year with plus 5% and a diligent strategy and approach from us around our biggest opportunities on ecosystems, IP within the platform with mobile itself and then obviously disciplined P and L performance around the business.

Speaker 2

Thank you very much.

Speaker 1

Thank you, Eric. Operator, next question please.

Operator

Our next question comes from Brian Pitzer with BMO Capital Markets.

Speaker 5

Thanks for the question. Andrew, we've seen reports that sports leagues like the NFL and NBA considering Ownership stakes in the likes of ESPN. Obviously, EA has one of the most valuable audiences in sports. Just curious, are there opportunities for EA to partner more closely with these leagues? And also from another dimension, I guess, how do you think about This opportunity as the NFL and other leagues embrace sports betting, is there a real money gaming opportunity?

Speaker 5

I know industry has looked at it in the past, but I think we're in a new place now going forward. Thanks.

Speaker 2

Yes. Again, great questions. I think the relationship between the NFL and the NBA and the likes of ESPN is super interesting to us. I would think about this on 2 vectors. 1, we have incredible relationships with our sports leagues.

Speaker 2

Many of them we've had for over 30 years, and They have evolved with us and we have evolved with them. A big part of what we have done through the rebrand of FC is actually gotten significantly closer to our European Football League partners, and much of what we've done as we have renewed and bolstered those relationships For the next decade and beyond is really think about how we can come together in service of fans more broadly, not just fans in the context of interactive gameplay. And part of what you're seeing there as we start to bring highlights into our games and really think about FC as a platform is kind of testament That evolution of the nature of our relationship, I do believe that we have the opportunity to do the same, with the NFL and the NBA, and you should imagine that we're very closely with all of our league partners, NHL, UFC, F1, and we see a tremendous opportunity to really think about EA Sports as a platform for engagement and how we might grow in service of our fans with our league partners. I would also highlight we've had a relationship with ESPN for the best part of 30 years and have worked very closely with them and continue to work very closely with ESPN and the Walt Disney Company as we think about the future of entertainment broadly.

Speaker 2

And so, we feel very good about our position In the future, we feel very good about the connection we have with the fans. We feel very good about our opportunity to grow our business as a result of this evolved service opportunity we have with them. Thank you.

Speaker 1

Operator, next question please.

Operator

Our next question comes from the line of Andrew Maroc with Raymond James.

Speaker 8

Thanks for taking my questions. Wanted to dig into a couple of things on the recent Apex event this last month with Final Fantasy. So commentary sounded really good in the prepared remarks, but with the dynamic that versus prior collection events, it was maybe less expensive the first few items, the more expensive to complete, how does that affect payer dynamics and what are some of the key learnings coming out of that event for you guys?

Speaker 2

I guess at a macro level, we're really, really happy with that event. It was very well received by the community. It performed incredibly well. And certainly, as we were in what was a very, very competitive quarter, there were a couple competitive titles that actually did some really unique and interesting things in the quarter. And so the performance of Apex With that collection event in the context of some of these other unique things happening in the competitive landscape, we think shows tremendous promise for how the franchise continues into season 2020 beyond.

Speaker 2

I've spent a lot of time with the team lately. The team are very committed to the game. They're very committed to the community. They're working diligently to offer new types of content and new types of mechanics into the game, And they put tools in place to test those meaningfully to ensure that both they're enhancing gameplay, but also that they're fulfilling the needs and motivations of the community. And I'm very encouraged by what we saw out of that collection event and I'm very encouraged as we go into season 20 and all the new and interesting things that the team is doing.

Speaker 8

Great. Thank you. You kind of led into what was going to be the next part of my question. So we've seen Apex do some smaller crossover events in the past, but How did the Final Fantasy partnership specifically kind of come about? And with the increasing intent kind of in the rest of the states, As you hinted at for a lot of these cross media partnerships, how much room and intent is there for more of these more substantial crossovers within Apex?

Speaker 2

Yes. I think we're still learning, and the team is now thinking through what that might look like. Remember, Apex is this incredible game that has 100 of millions of people to play. There's tremendous retention in its core. And underneath that core gameplay, which is incredible and what Respawn is known for, There's also tremendously deep lore about who these characters are, where these characters come from, and how those characters interact in the world.

Speaker 2

So we have to be very thoughtful about any brand crossovers that we do to make sure that we're not impeding The authenticity of the characters or the game in any way. What I think the Final Fantasy crossover did was actually open our eyes So the kinds of things that are possible and the kinds of things that will be super well received by our core fan base and new fans alike and how that lines up with the core law of the game. And so I would expect that we have more opportunities to do this in the future, But I would also expect that the team will continue to protect both the core gameplay, the core character set, and the core lore in the world. But what this event does show is we have probably more ability to do things in that direction than we may have thought previously.

Speaker 1

Thank you. Operator, our last question please.

Operator

Our last And comes from the line of Mike Hickey with Benchmark Company.

Speaker 9

Hey, Andrew, Stuart, Katie, thanks for squeezing me in here. First question is kind of a challenge, Andrew, because it hasn't been announced, but we obviously have a fair amount of evidence that The Switch 2 for Nintendo should come out this year. And from what we know, it's going to be a bigger Play more horsepower, it seems like it is something a platform that would better lend itself to your game. And as

Speaker 2

much as you can sort

Speaker 9

of talk about an opportunity that's not been officially announced, just curious If you think you can have more success on that sort of platform that seems better geared towards your games. The second one is sort of it looks like 25 is not calling an investment year, but most of The growth here is driven by your core games and live services. But you look at your longer term pipeline, you think about Battlefield, Mass Effect, Star Wars, obviously, you've been great in the action genre. I think you're still developing a shooter from Respawn as well. Okay, Dem's free to play, maybe user generated content, licensed properties like Iron Man, Black Panther.

Speaker 9

I mean, all of those seem Feasible by fiscal 'twenty seven. So just sort of curious, and I know you kind of talked about your longer term growth opportunity. In near term, you focus on leverage, but do you think you're sort of in a position here in the next few years to sort of accelerate your top line growth just given how substantial your

Speaker 2

Yes. A lot there and you're a little quiet at the beginning, but I think what you're asking or We're suggesting there has been some rumors that Nintendo is doing a new console. And to the extent that I'm able to comment on things that are not yet announced, do I think that might benefit Our company and our portfolio, again, I can absolutely not comment on anything that has not been announced or acknowledge it in any way. What I would say though is to the extent that platforms over the course of the last 20 years have come out and offered improved CPU, GPU, memory, battery life, screen resolution, to the extent those things have happened where we're able to deliver more immersion for our players, particularly around our biggest franchises like FC, like Madden, like Battlefield, Like Apex, that has typically been very good for our business. Our players' ability to really experience our games at the highest level has typically worked out very well for us.

Speaker 2

And so without commenting at all on anything around Nintendo or the Switch, I would just say New platforms are good for us. When new platforms offer improved CPU, GPU, memory, battery life, screen resolution, that typically is a plus for our particular portfolio of games and the community that plays them.

Speaker 3

And Mike, just to kind of tackle your second question, let's take 25 1st, a second, and I'll build it back into the longer term answer I gave before and we prepared remarks on as well. So first on 25. So I think the key here is we expect growth in our core business. We're 73% live service and obviously have a consistent full game sports release slate, plus we've talked to college coming in the summer next year in 2024. 2nd, we do have a lighter release slate, which obviously comps to a Star Wars launch and a more expansive sports slate where we saw 8 titles released this year.

Speaker 3

And we've called out also that Battlefield is not in our FY 'twenty five outlook. 3rd, we continue to drive leverage. And I'll just you to your question around sort of an investment year. You can see sort of by the underlying profitability range that we are still getting scale and leverage by virtue of efficiencies in the business, but also continue to resource and reallocate against some of our bigger growth opportunities. Last one obviously is just a reminder, we continue to expense costs.

Speaker 3

So as we continue to build into that acceleration that flows into the longer term beyond FY 2025, That will be highly beneficial if we think of operating leverage to some of the questions we've had earlier. So you kind of put that together. So FY 2025, I'll see core business growth. We'll talk more about the details in our Q4 call. Lighter slate, ongoing scale and leverage from the core business itself and obviously we expense as we go from an investment perspective.

Speaker 3

We do expect to see for all the titles in terms of new releases plus ongoing growth in our core business that we do believe we continue to get accretion and long growth and incremental cash flow that accelerates through those following years to the comments we laid out earlier.

Speaker 2

Okay. Thank you all for being here and thank you for your great questions. Really good question today. I want to extend my deepest appreciation to our teams for their passion, Their hard work and commitment in delivering incredible interactive entertainment to our growing global communities. And to close, I'd say we're confident in our look forward to updating you next quarter on our fiscal year results on May 7.

Speaker 2

And before we sign off, it would be remiss of me if I didn't congratulate our local Bay Area team, the

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Key Takeaways

  • Q3 Net Bookings and Live Services: EA delivered Q3 net bookings of $2.37 billion, up 1% year over year (2% in constant currency), driven by a record $1.71 billion in live services bookings while full-game net bookings declined 5%.
  • FC and Madden Strength: EA Sports FC Ultimate Team and Madden NFL 24 both saw double-digit net bookings growth, with FC Mobile daily active users up 29% and Madden Mobile achieving double-digit community growth.
  • Franchise Engagement: The Sims 4 playtime rose nearly 30% to 1.8 billion hours in calendar 2023, and Battlefield 2042 total players increased 17% with weekly average users up 37% year over year.
  • Q4 and FY25 Outlook: Q4 guidance forecasts net bookings of $1.625–$1.925 billion (down 16% to 1%), and EA expects low-single-digit net bookings growth in FY 2025 alongside continued operating leverage and record free cash flow.
  • Long-Term Growth Strategy: EA plans to accelerate growth through expanded player acquisition, live services, blockbuster new releases, and disciplined cost management across its core sports and entertainment franchises.
A.I. generated. May contain errors.
Earnings Conference Call
Electronic Arts Q3 2024
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