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#1: Electronic Arts is stronger than ever
EA reported its best first quarter ever, producing record bookings and cash flows. As is the norm for most gaming companies these days, this growth also represented an acceleration: TTM net bookings rose 17% and cash flows rose even faster.
Part of this growth stemmed from a couple new game releases — Burnout Paradise Remastered and Command & Conquer Remastered — but the majority of revenue actually came from live services, which succeeded thanks to strong engagement across EA’s most important brands:
- Season 5 of Apex Legends had the strongest engagement since Season 1
- The Sims 4 broke multiple player records with more than 30 million players across platforms
- FIFA and Madden helped fill the sports void, and Ultimate Team revenue leaped 70% over the prior year
- Even Star Wars: Galaxy of Heroes (mobile) boasted the strongest quarterly performance since 2018
Ongoing content updates are more important than ever, and EA is doing a great job keeping players engaged across its large and growing product suite. There's still room to improve — Fortnite, for example, is still uncontested when it comes to masterful in-game events — but EA appears to be on a good trajectory.
It's also worth noting that the company launched 30 titles on Steam this quarter, which certainly helped with growth, and the EA All Access subscription service will come to Steam later this Fall.
At the end of the day, this was just one quarter and it's important to remember just how strong of a company EA is. Its portfolio of brands is huge, robust live services translate to more consistent revenues, its franchises enable endless opportunities for new games, EA generates nearly $2 billion in free cash flow, and it holds $5 billion in net cash. Even though many gamers love to hate on EA, the company is thriving.
Of course, while EA's move to live services is strategically sound, there are still avenues for improvement.
Mobile, which represented 13% of Q1 net bookings, is EA's largest weak spot. Internal mobile development has waned, no meaningful M&A has occurred in years, and even co-development partnerships have been minimal. There's really only upside here.
One promising change this quarter is the announcement that Jeff Karp was hired to head up EA's mobile division. This is interesting because EA Mobile is no longer one of three studios under Samantha Ryan and is therefore less structurally stifled. If that small change in organizational autonomy is the first domino of additional changes, it could be a promising signal. We'll have to wait and see how it plays out.
The other avenue of improvement worth double emphasizing for now is M&A. EA has $5 billion in net cash, and that number is only going to grow. The company doesn't pay a dividend, share repurchases are more mechanical than timely, so striking valuable deals — attaining great brands & talent, especially for mobile — is probably the best use of excess cash.
There's no doubt that EA is in most major M&A discussions, but being able to win deals and close at favorable terms doesn't appear to be happening. That said, it's probably a matter of "when" not "if" an acquisition takes place. Again, we'll just have to wait and see. However, EA as a whole remains robust and very well positioned.
#2: Use of Roblox is skyrocketing
Roblox unveiled some updated numbers that showcase how incredible its recent progress has been:
- The platform now has 150 million MAUs
- Roblox developers are on pace to earn $250 million in revenue this year, which represents a 127% leap over last year
- There are 345,000 creators making money on Roblox
- The most popular Roblox game, Adopt Me, hit 1.62 million concurrent players, and the studio behind it expects to have a staff of 100 employees by year end
Matthew Ball also shared this great chart of Roblox's monthly hours of playtime on Twitter:
Roblox was big pre-COVID, but recent events — especially kids stuck at home for many months — have propelled the company's platform to another level. What an incredible story.
This is a testament to Roblox's skilled execution, not to mention the broader potential of user-generated content (UGC) platforms. Roblox is now mainstream with a young demographic, and it's an encouraging sign that UGC has a bright future among other demographics as well.
Of course, Roblox has an enormous head start, but expect this rising UGC wave to be a defining trend of the next 5+ years. In a few years there will be a handful of dominant winners, and we're about to enter a race to see who can capture meaningful market share alongside Roblox. Manticore? Epic Games? Others? Time will tell, but we'll be paying close attention to see who's best positioned and making the most progress.
Master the Meta is a newsletter focused on analysing the business strategy of the gaming industry. It is run by Aaron Bush and Abhimanyu Kumar. To read this week’s entire meta, visit www.masterthemeta.com!