Game development and publishing giant Electronic Arts released its Q3 FY20 financial results on January 30, and CEO Andrew Wilson discussed them on an earnings call. Among the cascade of numbers and figures, there’s one thing that stands out above all: The sheer volume of revenue generated by microtransactions. In the third-quarter of the fiscal year, ending on December 31, 2020, EA generated $993 billion in revenue from microtransactions in Q3 alone.
For those unfamiliar with “fiscal years”, companies generally don’t follow the calendar year in terms of accounting. Rather, they follow a fiscal year which extends from the beginning of Spring of one year into the following year. The current fiscal year, FY20, ends on March 31, 2020. The third quarter, Q3 FY20, just ended on December 31, 2019.
This means that there still remains another quarter in FY20, so EA’s total “Live Services” revenue–the company’s internal jargon for “microtransactions”– totalling $2.604 billion for the first three quarters of FY20, still has room for growth.
The report also highlights some previously discussed trends, with EA’s digital products and services accounting for a full 73.5% of their Q3 FY20 total revenue, or $1.487 billion of the $2.021 billion total. Physical products accounted for a mere $534 million. If we pull the window back to include the full 12 month period ending on December 31, 2019, digital sales accounted for $4.16 billion vs physical sales of $1.228 billion; or 77% of the $5.388 billion total.
The irony here is that 77% digital revenue is significantly lower than the industry average for digital game sales, where digital sales accounted for a full 83% of all game sales in 2018. While revenue doesn’t correlate to game sales, it would be interesting to see how the EA’s distribution of digital vs physical units sold.
Another interesting note from the quarterly report is the relatively small portion of gross revenue that EA’s mobile segment accounts for. With mobile revenue commanding a majority of overall revenue in the games industry, and given Electronic Art’s key position in that industry, one might expect EA’s mobile segment to be better performing. Instead, their mobile revenues are barely on par with, and occasionally less than, their physical sales revenue.
To us, this spells out at least one major takeaway. Without the buttress of high-performing mobile titles, and the sheer majority of EA’s revenue being generated by their so-called “live services”, it is inevitable that EA will be doubling down on the microtransaction business model going forward. As we head into a new fiscal year and a whole new generation of gaming consoles, EA simply cannot afford to back away from what amounts to the company’s bread-and-butter.
Despite the recent success of EA’s recent AAA titles, such as Star Wars Jedi: Fallen Order, it is a safe bet that EA’s titles will continue to focus on in-game purchases and subscription services to generate core revenue. It also begs the question: Will Electronic Arts make significant efforts to move into the mobile market going forward? Our magic 8-ball says, “Seems likely.”