Success on iOS but Weak Console Game Performance for Electronic Arts

According to investment firm Digi Capital, in their Global Games Investment Review 2013, the digital games industry is projected to grow at an annual rate of 12.2% over 2012 through 2016 to reach $83 billion. Online and mobile games will continue to drive growth in the market as sales of console games dwindle. In 2012, online and mobile games amounted to 49% of total global video games revenues. Their share is projected to grow to 57%, translating to $48 billion, by the year 2016.

Electronic Arts’s Financials

Games publisher Electronic Arts (NASDAQ:EA) is taking big steps to expand their portfolio from console-based games to online and mobile games. EA’s Q3 revenues fell from $1.65 billion a year ago to $1.18 billion, falling short of their earlier estimates of $1.25-$1.35. EA attributed the shortfall to their inability to deliver the expected performance with the “Medal of Honor” title, and they continued to suffer strong headwinds against console packaged goods. For the year, EA expects console game sales to have dropped 20% over the year. They ended the quarter with non-GAAP EPS of $0.57.

Despite their weak performance, digital revenues are showing a strong uptick. Non-GAAP revenues from mobile devices, including smartphones and tablets, grew 20% over the year quarter to $79 million. Overall mobile revenues, including those from handhelds, grew 13% over the quarter to $99 million. Including online revenues, total digital revenues grew 17.2% to $321 million. Digital game revenues were benefited by the release of “The Simpsons: Tapped Out,” which alone generated over $23 million in digital net revenues and helped EA become the number one publisher on iOS worldwide for 2012.

For the current quarter, Electronic Arts expects revenues of $1.115 billion-$1.215 billion with EPS of $0.57-$0.72. They project the year’s revenues at $3.703 billion-$3.803 billion with EPS of $0.86-$1.00. The market projects revenues of $1.220 billion with EPS of $0.71 for the quarter and revenues of $4.071 billion and EPS of $1.01 for the year.

EA Expands Portfolio

EA continues to add strong game titles to their digital portfolio. Recently, they released an upgraded version of “SimCity.” The new version of the classic game comes with several online features, including multiplayer capabilities. Players can play across as many as 16 cities simultaneously, share services and trade resources with friends, help or deter their friends’ performance, and play the game so that the changes they make to their city impacts the broader region. Players are also able to track their progress with their friends in terms of identifying cities that are the richest or the most polluted.

Unfortunately, though, the game’s launch did not go as well as hoped. “SimCity” was launched earlier this month to be available on PC at retail stores across North America and for digital download via Origin, their digital platform.  Due to server capacity constraints, gamers had to face several issues such as frequent disconnections and error messages. The game requires players to be connected to the Internet all the time, even if the game was being played in a single player mode. To compensate disgruntled players for the loss, EA offered to deliver a free game.

EA’s Social Platform Expansion

In addition, EA continued to expand their social offerings. Last year, they acquired ESN, a Sweden-based development studio. ESN develops cloud gaming technology that has been used in games such as “Battlefield 3” to offer features such as chat and leader boards. The acquisition of the 20-employee organization will add to EA’s social gaming capabilities.

EA’s stock is trading at $18.88, with a market capitalization of $5.67 billion.