Top video game maker Electronic Arts (NASDAQ: EA) delivered a treat to investors when it reported earnings on Halloween. The new release of Madden NFL 18 helped fuel an acceleration in digital bookings (management’s new term for digital revenue) which is now 63% of EA’s total revenue over the trailing-12-month period.
Some investors didn’t like their treat, with the stock down about 5% following the earnings release. But, as Foolish investors, we’re focused on how the business is doing knowing that the stock price will take care of itself over the long term. And from that perspective, EA is performing very well.
It’s all about digital growth
The digital distribution trend is sweeping through the video game industry, and this was very evident looking at EA’s earnings results. In last year’s comparable quarter, digital bookings grew only 1% but accelerated to a 19% growth rate in this year’s quarter. On a trailing-12-month basis, digital bookings grew 26% year over year to $3.24 billion.
The largest component of digital bookings is live services, which includes revenue from Ultimate Team, where players can buy in-game card packs for EA Sports titles. Revenue from live services grew 22% for the quarter, driven by Battlefield 1 and Ultimate Team, bringing the trailing-12-month amount to $1.814 billion.
Digital bookings were also driven by strong growth in the number of players choosing to buy Madden NFL 18 directly over console as opposed to buying a physical copy in stores. Full game downloads are better for EA’s margins than sales of physical game discs, but it’s still a minor percentage of EA’s annual revenue. This category grew 28% in the quarter and grew 54% on a trailing-12-month basis, so it won’t take long for it to become a key component of EA’s annual game sales, helping to fuel margin expansion over time.
EA Sports titles showing solid growth
The strategy behind EA Sports titles is to funnel gamers to Ultimate Team. This digital card game also serves as the gateway to esports for the company, so it’s important to see the digital side of EA Sports titles growing over time.
This year is shaping up to be a very strong year for Ultimate Team which totaled 17% of EA’s revenue in fiscal 2017….