10-QPeriod: Q3 FY2014

ELECTRONIC ARTS INC. Quarterly Report for Q3 Ended Dec 31, 2013

Filed February 4, 2014For Securities:EA

Summary

Electronic Arts Inc. (EA) reported its financial results for the third quarter and the first nine months of fiscal year 2014, ending December 31, 2013. The company experienced a net loss of $308 million for the quarter, a significant increase compared to the $45 million loss in the prior year's quarter. This widening loss was primarily attributed to a $202 million decrease in gross profit, influenced by accounting for physical game sales over a longer period and a higher proportion of deferred revenue. Additionally, a favorable $45 million reversal of acquisition-related contingent consideration in the prior year's quarter did not recur. Revenue-wise, total net revenue for the quarter decreased by 12% to $808 million, impacted by accounting deferrals. However, excluding these deferrals, net revenue would have shown a substantial increase of 33%. Key drivers for the quarter's revenue included strong performances from FIFA 2014, Battlefield 4, and Madden NFL 25. The company also noted the significant industry shift towards next-generation consoles, with adoption being faster than anticipated but not yet fully offsetting the decline in current-generation console game sales.

Financial Highlights

49 data points
Beta

Revenue

$808.00M

36.0% Gross Margin

Net Income

-$308.00M

-38.1% Net Margin

EPS (Diluted)

$-1.00

Total Assets

$5.57B

Cash & Equivalents

$1.75B

Free Cash Flow

$685.00M

Financial Statements
Beta
Revenue$808.00M
Cost of Revenue$438.00M
Gross Profit$291.00M
Operating Expenses$583.00M
Operating Income-$292.00M
Interest Expense-$8.00M
Net Income-$308.00M
EPS (Basic)$-1.00
EPS (Diluted)$-1.00
Shares Outstanding (Basic)309.00M
Shares Outstanding (Diluted)309.00M

Key Highlights

  • 1Net loss widened to $308 million for the three months ended December 31, 2013, compared to $45 million in the prior year period.
  • 2Total net revenue decreased 12% to $808 million for the quarter, with a significant portion of revenue being deferred under accounting rules.
  • 3Excluding revenue deferrals, net revenue would have increased by 33% year-over-year for the quarter.
  • 4Key revenue drivers for the quarter included FIFA 2014, Battlefield 4, and Madden NFL 25.
  • 5The company's cash and cash equivalents increased significantly to $1.746 billion, up from $1.292 billion at the end of the previous fiscal year.
  • 6EA is investing in next-generation consoles (Xbox One and PlayStation 4) and observed faster adoption than expected, though it hasn't fully offset declines in current-generation console sales.
  • 7Service and other revenue increased by 47% year-over-year for the quarter, indicating growth in digital content and services.

Frequently Asked Questions

For the three months ended December 31, 2013, Electronic Arts reported a net loss of $308 million, a significant increase from the $45 million net loss in the same period last year. Total net revenue decreased 12% to $808 million. However, excluding the impact of revenue deferrals, net revenue would have increased by 33% year-over-year.

The widened net loss was primarily due to a $202 million decrease in gross profit. This was influenced by accounting treatment for physical game sales which are recognized over a longer period, and a higher percentage of sales being deferred. Additionally, a favorable $45 million reversal of acquisition-related contingent consideration in the prior year's quarter did not recur this period.

EA is investing in products for the new Xbox One and PlayStation 4 consoles. The adoption rate of these consoles has been faster than anticipated, but it has not yet fully offset the decline in sales of games for current-generation consoles. The success of EA's products on these new platforms depends on the consoles' commercial success and supply, and EA's ability to develop compelling games for them.

EA is seeing substantial growth in digital revenue streams. For the nine months ended December 31, 2013, digital revenue (wireless, internet-derived, and advertising) was $1.342 billion, and the company expects this segment to continue growing. Service and other revenue, which includes digital content and services, increased by 47% year-over-year for the quarter.