01—Abstract
Summary
Summary of the 10-K filed May 21, 2014. Cited figures are marked; the original filing is the authoritative source.
Electronic Arts Inc. (EA) reported revenues of $3.575 billiona for the fiscal year ended March 31, 2014, a decrease of 6% from the prior year.
This decline was primarily attributed to a shift in revenue recognition for online-enabled games and fewer major title releases. Despite the revenue dip, EA saw a significant increase in its digital revenue, which grew by 8% to $1.793 billionb (before revenue deferral), highlighting a successful transition towards digital distribution and services. Financially, the company posted a net income of $8 million ($0.03 diluted EPS), a substantial decrease from $98 million ($0.31 diluted EPS) in the previous year, largely due to increased costs related to a litigation settlement and a change in revenue deferral policies.
EA is strategically focusing on fewer, higher-quality 'hit' titles across multiple platforms, including new console generation games for PlayStation 4 and Xbox One, and is investing in its digital offerings and direct-to-consumer relationships through platforms like Origin. The company also announced a new $750 millionc stock repurchase program, indicating a commitment to shareholder returns.
02—Key points
Key Highlights
- Total net revenue decreased by 6% to $3.575 billion in fiscal year 2014.
- Digital revenue (before deferral) increased by 8% to $1.793 billion, demonstrating a shift towards digital sales.
- Net income declined significantly to $8 million ($0.03/share) from $98 million ($0.31/share) in the prior year, impacted by revenue deferral changes and a litigation settlement accrual.
- The company published significantly fewer titles (11 in FY14 vs. over 30 in FY11) to focus on 'hit' potential.
- EA is actively developing for new console platforms (PlayStation 4 and Xbox One).
- A new $750 million stock repurchase program was authorized, superseding the previous $500 million program.
- The company incurred a $30 million accrual for an anticipated settlement of lawsuits concerning college athlete likenesses.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Electronic Arts kept $0.00.
- Revenue$3.58B100.0%
- Cost of revenue−$1.35B37.7%
- Gross profit$2.23B62.3%
- Operating costs−$2.19B61.4%
- Operating income$33.0M0.9%
- Interest, other & tax−$25.0M0.7%
- Net income$8.0M0.2%
Where FY2014 revenue went
$3.58B- Operating costs: $2.19B, 61% of revenue
- Cost of revenue: $1.35B, 38% of revenue
- Net income: $8.0M, 0.2% of revenue
- Interest, other & tax: $25.0M, 0.7% of revenue
Kept 0.2% as net incomeNet income $8.0M · 0.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed May 21, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.58B$3.80B | −5.8% |
| Cost of Revenue | $1.35B$1.39B | −3.0% |
| Gross Profit | $2.23B$2.41B | −7.5% |
| Operating Expenses | $2.19B$2.29B | −4.1% |
| Operating Income | $33.00M$121.00M | −72.7% |
| Interest Expense | $30.00M$29.00M | +3.4% |
| Net Income | $8.00M$98.00M | −91.8% |
| EPS (Basic) | $0.03$0.32 | −90.6% |
| EPS (Diluted) | $0.03$0.31 | −90.3% |
| Shares Outstanding (Basic) | 308.00M310.00M | −0.6% |
| Shares Outstanding (Diluted) | 316.00M313.00M | +1.0% |
05—Questions
Frequently Asked Questions
What was the primary driver of the revenue decline in fiscal year 2014?
The primary driver of the revenue decline was a change in revenue recognition for online-enabled games, increasing the estimated offering period for revenue deferral from six to nine months for physical games. This change, along with fewer major title releases, contributed to a 6% decrease in total net revenue compared to the prior year.
How is EA's digital business performing?
EA's digital business showed strong performance, with digital revenue (before revenue deferral) increasing by 8% to $1.793 billion in fiscal year 2014. This growth, driven by full-game downloads, extra content, and free-to-play sales, highlights EA's successful transition towards digital distribution and services.
What is EA's strategy regarding its product portfolio?
EA is narrowing its product portfolio to focus on developing higher-quality titles with the potential to become 'hit' products. This strategy involves reducing the number of published titles to concentrate resources on key intellectual properties, aiming for year-round engagement across multiple platforms.
What financial impact did the new console generation have?
The release of new consoles like the PlayStation 4 and Xbox One in November 2013 marked a transition period. While EA invested heavily in developing for these new platforms, sales for legacy consoles (PS3, Xbox 360) declined significantly. The success of EA's new-generation titles is crucial for offsetting this trend.
06—Continue