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Electronic Arts Got a Boost From "Apex Legends" Last Quarter

John Ballard, The Motley Fool

The worst might be over for Electronic Arts (NASDAQ: EA). After a sluggish fiscal 2019, the game maker reported better-than-expected earnings results for the fiscal first quarter of 2020 (the company's fiscal year ends in March). 

Non-GAAP revenue, or net bookings, came in at $743 million, which was slightly down year over year but better than the average analyst estimate of $719 million. Management credited strong player engagement in Madden NFL, FIFA, The Sims 4, and Apex Legends for the better-than-expected results. 

Here's a deeper dive into what drove EA's results.

Two video game controllers on a carpeted floor in front of a large TV.

IMAGE SOURCE: GETTY IMAGES.

Core games performing well

EA's live services business, including in-game purchases and subscriptions, saw a 12% increase in revenue for the quarter. It's a much better start to the fiscal year than last year, when live services decelerated to a 7% growth rate. 

The Sims 4 and Apex Legends were mostly responsible for the improvement in live services. There are 8 million to 10 million people logging in to play Apex Legends every week. COO Blake Jorgensen said, "That's huge for us on almost any game that we see, and we'll continue to take advantage of that and keep them engaged playing every day."

Management also called out healthy engagement in the Madden NFL and FIFA franchises. New seasonal events and tie-in content with the NFL Draft drove growth in new players for Madden. EA will be launching the next installment in the series when Madden NFL 20 comes out, on Aug. 2. 

FIFA continued to show deep engagement as well, with 3 million people playing in Ultimate Team mode every day during the quarter. The healthy engagement trends are carrying over to Madden and FIFA esports, which is seeing a lot of momentum. Management characterized the interest in esports for both Madden and FIFA as "exploding." 

For Madden esports, EA has signed up major brands, including Pizza Hut, Snickers, and Starbucks as sponsors for the Madden NFL 20 Championship Series. Keep in mind that revenue from esports and advertising is included in live services. 

The company's total revenue growth for the quarter was weighed down by fewer new game releases this year compared to last year. Plus, mobile revenue continued its slide, down 17% to $122 million for the quarter. 

The mobile business has suffered from aging titles, but management likes the engagement it's seeing with Star Wars: Galaxy of Heroes, which has nearly 80 million players. Management believes that Disney's new Star Wars TV show, movie, and theme park attractions will drive higher in-game spending for the mobile game later in the year. 

Keep an eye on Apex Legends

EA's new battle royale shooter, Apex Legends, just started its second season of online competition, and executives like the engagement they are seeing in the game. It's still not generating a lot of revenue since it released earlier this year, but EA has plans to grow the franchise through live services, esports, and a mobile version of the game releasing in the next few years. 

Investors will want to watch for engagement updates for Apex Legends in the next few quarters. Management guided that the combined net bookings from both Apex Legends and The Sims 4 should be between $300 million and $400 million this year. 

Despite the better-than-expected quarter, management kept its full-year guidance the same. Net bookings for fiscal 2020 are expected to be approximately $5.1 billion -- slightly higher than the $4.944 billion in fiscal 2019. Excluding a tax benefit of $1.7 billion, net income is expected to be $1.095 billion. 

Executives like to remain conservative with guidance early in the year, but hinted that another strong quarter would likely cause them to raise the full-year outlook. 

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John Ballard owns shares of Electronic Arts and Walt Disney. The Motley Fool owns shares of and recommends Starbucks and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com