10-QPeriod: Q1 FY2012

ELECTRONIC ARTS INC. Quarterly Report for Q1 Ended Jun 30, 2011

Filed August 9, 2011For Securities:EA

Summary

Electronic Arts Inc. (EA) reported strong financial performance for the first quarter of fiscal year 2012, ending June 30, 2011. Total net revenue increased by 23% year-over-year to $999 million, primarily driven by robust sales from titles like Portal 2, FIFA 11, and Need for Speed: Hot Pursuit. Net income also saw a significant jump to $221 million from $96 million in the prior year's comparable period, resulting in diluted earnings per share of $0.66 compared to $0.29. The company highlighted a strategic shift towards digital content distribution and services, with revenue from wireless, internet-derived, and advertising products growing to $232 million. EA also announced the significant acquisition of PopCap Games, Inc. for approximately $750 million in cash and stock, a move aimed at bolstering its social gaming and digital business. Furthermore, EA successfully raised $632.5 million through the issuance of convertible senior notes, providing capital for future growth and strategic initiatives.

Financial Highlights

46 data points
Beta

Revenue

$999.00M

76.0% Gross Margin

Net Income

$221.00M

22.1% Net Margin

EPS (Diluted)

$0.66

Total Assets

$4.36B

Cash & Equivalents

$1.17B

Free Cash Flow

-$274.00M

Financial Statements
Beta
Revenue$999.00M
Cost of Revenue$240.00M
Gross Profit$759.00M
Operating Expenses$532.00M
Operating Income$227.00M
Net Income$221.00M
EPS (Basic)$0.67
EPS (Diluted)$0.66
Shares Outstanding (Basic)331.00M
Shares Outstanding (Diluted)337.00M

Key Highlights

  • 1Total net revenue for the quarter increased by 23% to $999 million compared to the prior year period.
  • 2Net income rose significantly to $221 million, with diluted EPS at $0.66, up from $96 million and $0.29, respectively.
  • 3Digital content and services revenue grew to $232 million, indicating a successful pivot towards online and mobile platforms.
  • 4The company announced a definitive agreement to acquire PopCap Games, Inc. for approximately $750 million in cash and stock.
  • 5EA successfully closed a $632.5 million offering of 0.75% Convertible Senior Notes due 2016.
  • 6International sales accounted for 50% of total net revenue, highlighting global market strength.
  • 7The company is actively managing its product portfolio, reducing the number of primary titles released to focus on high-performing franchises.

Frequently Asked Questions

The increase in net revenue was primarily driven by higher sales from distribution products, particularly strong performances from titles like Portal 2, FIFA 11, and Need for Speed: Hot Pursuit. The rise in net income was largely attributable to a substantial increase in gross profit, partly due to changes in deferred net revenue recognition, which more than offset increases in restructuring charges, marketing and sales expenses, and income tax provision.

The acquisition of PopCap Games, Inc. is a key strategic move for Electronic Arts. PopCap is a leader in mobile, tablet, PC, and social network games. This acquisition is expected to significantly accelerate EA's participation in social gaming and contribute substantially to its digital business growth, aligning with the company's focus on evolving digital distribution channels.

EA is mitigating the impact of shorter game sales cycles and used game markets by focusing on direct-to-consumer services like online multiplayer options and offering additional downloadable content (DLC). These initiatives aim to extend the gaming experience post-purchase and generate additional revenue streams.

EA sees significant growth potential in digital content distribution and emerging platforms. Revenue from wireless, internet-derived, and advertising (digital) products increased to $232 million in the reported quarter and is expected to continue growing. The company is actively adapting to advances in mobile technology and consumer acceptance of digital distribution by offering various sales models and cross-platform play.