01—Abstract
Summary
Summary of the 10-K filed May 24, 2017. Cited figures are marked; the original filing is the authoritative source.
Electronic Arts Inc. (EA) reported a strong fiscal year 2017, with total net revenue reaching $4.845 billiona, a 10% increase year-over-year.
This growth was primarily driven by a significant 19%b rise in digital revenue, which now accounts for 59% of total net revenue, highlighting the company's successful transition to digital distribution and live services. The company's strategic focus on a 'Players First' approach, commitment to digital, and 'One EA' operational model appears to be paying off. Key franchises like FIFA, Battlefield, and Star Wars continue to perform well, with the Ultimate Team mode in FIFA and live services for other franchises demonstrating their ability to extend game lifecycles and drive recurring revenue.
EA also continued its focus on returning value to shareholders through a robust stock repurchase program, authorizing an additional $1.2 billionc in May 2017. While the company experienced a decrease in net income year-over-year, this was largely attributed to a significant one-time income tax benefit in the prior fiscal year. Overall, EA demonstrated solid revenue growth and a continued strategic shift towards higher-margin digital offerings, positioning it for sustained engagement in the interactive entertainment market.
02—Key points
Key Highlights
- Total net revenue increased by 10% to $4.845 billion in fiscal year 2017.
- Digital revenue grew by 19% to $2.874 billion, representing 59% of total net revenue, indicating a successful digital transformation.
- Key franchises such as FIFA, Battlefield, and Star Wars continue to be significant revenue drivers.
- The Ultimate Team mode in FIFA and other live services contribute substantially to revenue and player engagement.
- Operating income increased by 36% year-over-year, demonstrating improved profitability.
- The company actively engaged in share repurchases, authorizing a new $1.2 billion program in May 2017.
- Research and Development expenses increased by 9% to $1.205 billion, reflecting continued investment in product development.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Electronic Arts kept $0.20.
- Revenue$4.84B100.0%
- Cost of revenue−$1.30B26.8%
- Gross profit$3.55B73.2%
- Operating costs−$2.32B47.9%
- Operating income$1.22B25.3%
- Interest, other & tax−$257.0M5.3%
- Net income$967.0M20.0%
Where FY2017 revenue went
$4.84B- Operating costs: $2.32B, 48% of revenue
- Cost of revenue: $1.30B, 27% of revenue
- Net income: $967.0M, 20% of revenue
- Interest, other & tax: $257.0M, 5.3% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed May 24, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.84B$4.40B | +10.2% |
| Cost of Revenue | $1.30B$1.35B | −4.1% |
| Gross Profit | $3.55B$3.04B | +16.6% |
| Operating Expenses | $2.32B$2.14B | +8.3% |
| Operating Income | $1.22B$898.00M | +36.3% |
| Interest Expense | $47.00M$28.00M | +67.9% |
| Net Income | $967.00M$1.16B | −16.3% |
| EPS (Basic) | $3.19$3.73 | −14.5% |
| EPS (Diluted) | $3.08$3.50 | −12.0% |
| Shares Outstanding (Basic) | 303.00M310.00M | −2.3% |
| Shares Outstanding (Diluted) | 314.00M330.00M | −4.8% |
05—Questions
Frequently Asked Questions
What is the primary driver of Electronic Arts' revenue growth?
The primary driver of Electronic Arts' revenue growth in fiscal year 2017 was its digital business. Digital revenue increased by 19% year-over-year, now comprising 59% of total net revenue. This growth is attributed to the increasing popularity of full game downloads, extra content sales (like Ultimate Team modes), subscriptions, and mobile games.
How is Electronic Arts managing its intellectual property and brand portfolio?
Electronic Arts leverages a portfolio of well-established brands, including wholly-owned intellectual property like Battlefield, The Sims, and Need for Speed, as well as licensed brands such as FIFA, Madden NFL, and Star Wars. The company focuses on building deep player relationships through these franchises, aiming to create long-lasting fun and enduring value across various platforms and business models.
What are the main risks facing Electronic Arts, as outlined in the filing?
Key risks include intense competition in the gaming industry and reliance on 'hit' products, dependence on third-party platform success (like consoles), rapid technological changes, potential for security breaches, fluctuations in international currency exchange rates, and the risk of failing to attract and retain key personnel. The company also faces risks related to the concentration of sales among a few large customers and potential disruptions to its supply chain and distribution channels.
What is Electronic Arts' strategy regarding digital transformation and live services?
EA's strategy emphasizes a commitment to digital and live services. This involves players increasingly purchasing games digitally and engaging with services like microtransactions, downloadable content, subscriptions, and esports. Live services, such as Ultimate Team modes, are crucial for extending game lifecycles and fostering ongoing player engagement. The company is investing in technology to build personalized player relationships and deliver content and services more efficiently through these digital channels.
06—Continue