Earnings Call Transcript - EA Q2 2023

Operator, Operator

Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Electronic Arts Second Quarter Fiscal Year 2023 Earnings Conference Call. Mr. Chris Evenden, Vice President, Investor Relations, you may begin your conference.

Chris Evenden, Vice President, Investor Relations

Thank you. Welcome to EA's Second Quarter Fiscal 2023 Earnings Call. With me today are Andrew Wilson, our CEO; Chris Suh, our CFO; and Laura Miele, our COO. Please note that our SEC filings and our earnings release are available at ir.ea.com. In addition, we have posted detailed earnings slides to accompany our prepared remarks. Lastly, after the call, we will post our prepared remarks and audio replay of this call, our financial model, and a transcript. With regards to our calendar, our Q3 fiscal 2023 earnings call is scheduled for Tuesday, January 31. As a reminder, we posted the schedule of our entire fiscal year of upcoming earnings calls on our IR website. This presentation and our comments include forward-looking statements regarding future events and the future financial performance of the company. Actual events and results may differ materially from our expectations. We refer you to our most recent Form 10-Q for a discussion of risks that could cause actual results to differ materially from those discussed today. Electronic Arts makes these statements as of today, November 1, 2022, and disclaims any duty to update them. During this call, the financial metrics, with the exception of free cash flow, will be presented on a GAAP basis. All comparisons made in the course of this call are against the same period in the prior year, unless otherwise stated. And now I'll turn the call over to Andrew.

Andrew Wilson, CEO

Thanks, Chris. It's great to be here with you all. We delivered solid performance across our business in Q2, driven by our EA Sports portfolio and our multi-platform live services business. Our broad IP, exceptional talent, and growing player network of more than 600 million are the foundation of strength and stability in an uneven macro environment. During Q2, we launched Premier Sports Games and provided over 120 content updates on 35 titles across our global catalog. Our teams are deeply committed to delivering amazing games and entertainment that inspire fans to play, create, watch, and forge enduring social connections. Our broad IP portfolio is unrivaled in the gaming industry. Foundational to our leadership is EA Sports with breadth and depth of partnerships that allow us to continue delivering deeply immersive experiences to fuel long-term growth. Our Global Football business demonstrates the power of a multi-platform ecosystem with a massive community engaging through multiple experiences. In Q2, we delivered our biggest EA Sports FIFA console and PC launch in history. In addition, in FIFA Mobile, daily, weekly, and monthly active players were up more than 100% year-over-year. And our free-to-play FIFA Online service in Asia delivered record performance. Now the entire global football community across our ecosystem will benefit from the unique holiday timing of the World Cup. Next week, we'll launch new World Cup content into FIFA 23, FIFA Mobile, and FIFA Online designed to attract, engage, and entertain players throughout the tournament and beyond. For nearly 30 years, we've delivered the biggest and highest quality football games to fans all over the world. Across our ecosystem, we've built the world's largest football community with our players, 90,000 athletes, 700 teams, 30 leagues and federations, and more than 300 partners. As we now move into the future with EA Sports FC, we have even greater opportunity to engage the global audience of 3.5 billion football fans. Players will continue to experience everything they love about our games today: the modes, leagues, competitions, clubs, athletes, brands, and more. We'll push the technical boundaries for even greater innovation, immersion, and authenticity. And through more platforms and new modalities, we will reach new football fans all around the world, bringing them into our global community. This is what EA Sports FC is all about. In this unique year with our biggest ever console and PC title, a deeply engaging worldwide mobile experience, and our online PC services in Asia, and now with men's and women's World Cup content coming, we are in an incredible position to unlock a truly extraordinary future with EA Sports FC. As the consumption of entertainment and sport converges and grows, EA Sports offers fans immersive experiences like no other, an ability to play, create, watch, and connect with friends and the sports they love 365 days a year. Now more than ever, Madden NFL is deeply ingrained into the fabric of NFL fandom, reaching broader entertainment audiences. With the sport of F1 continuing its growth trajectory, especially in the U.S., we are well-positioned to expand the total addressable market for our F1 franchise. We have more than 200 million players engaged in our EA Sports games. As we look to the future of FC, Madden NFL, F1, NHL, UFC, PGA Tour, and others, we will continue growing these ecosystems to reach new fans, expand in new experiences, and create more social connectivity to fuel the enjoyment of sport. Our owned IP franchises continue to be among the most deeply engaging and culturally relevant entertainment properties in the world. Apex Legends is driving massive growth in emerging markets, and the team continues to build its content, universe, characters, and storylines across multiple platforms and experiences. As we expand our console, PC, and mobile experiences, Apex has captured the imagination of our global community beyond play. Not only are they playing, watching, and competing, they're captivated by the lore, the worlds, and storylines in and outside the game. We are just getting started and believe Apex will be one of the most important IPs in the world. Engagement in our Sims franchise continues to grow with millions of players unleashing their imaginations full of creativity, humor, and individuality, both in-game and across the entire ecosystem. We expect engagement to grow with the Sims 4 base game recently becoming free to enter. Looking ahead, our team is working on a new creative platform for our Sims community giving them more collaborative ways to play, create, connect, and share stories with their friends. In Q2, we also announced an exciting long-term multi-game collaboration with Marvel, joining forces with a cultural-defining powerhouse to expand our entertainment offerings. From our EA Sports League partners to Disney's Star Wars and Marvel Universes and more, we're partnering to grow our global communities, build value together, and co-create the future of entertainment. Our player network of more than 600 million worldwide continues to grow. The unique value of this network is our ability to create new communities and meaningful connections that matter. In fact, more than three-fourths of EA players engage with gaming content beyond the game itself, reading, watching and creating content, and engaging in social conversations through shared fandom. With EA Sports FC, Apex, The Sims, Skate, and more, all poised to fuel fun and social connection, our growing network will continue adding long-term value. As we look ahead, our talented teams are focused on building extraordinary experiences that drive deep engagement to grow our communities and reach new audiences, particularly Gen Z and Gen Alpha, who are turning to games as their preferred choice for entertainment and social connection. Games continue to be one of the fastest-growing forms of entertainment and the social networks of the future. We're in the privileged position of creating what people love doing more than anything else with their friends and family. Through our broad IP, our creative talent, and our growing network of players, we are well-positioned to lead the future of entertainment and deliver long-term value. Now I'll turn the call over to Chris.

Christopher Suh, CFO

Thanks, and hello to everyone. As Andrew said, we had another solid quarter driven by our EA Sports portfolio and our multi-platform live services business. And importantly, engagement from our players around the globe across both platforms and our broad portfolio of games continued to be strong, fueling our resilient live services business and enabling us to deliver on our commitments even as we navigate through an uneven environment. Net bookings for the second quarter were $1.75 billion and in line with our expectations, down 5% or 2% in constant currency due to the timing of the F1 launch with the strength in console and PC offsetting mobile. Our live services net bookings were also in line with our expectations, down 3% year-on-year or flat in constant currency due to the timing of the FIFA launch offset by strength elsewhere in the business. On a trailing 12-month basis, live services were 73% of our business. And with regard to full game sales, digital sales accounted for 66% of units sold through, up 5 percentage points from last year. Our EA Sports portfolio was the highlight and driver of Q2 net bookings. We saw strength across the entire FIFA franchise in the quarter, further demonstrating the power of our multi-platform ecosystem. FIFA net bookings grew 6% in constant currency, and we saw engagement increase significantly across all platforms. As Andrew mentioned, we delivered a record launch on FIFA 23. In the first four weeks, FIFA 23 sell-through unit sales were up 10% versus the comparable period for FIFA 22 and FUT players are up 6%. With the launch of Madden 23, Madden Ultimate Team players and net bookings are both up double digits year-on-year. We delivered Q2 net revenue of $1.9 billion, in line with our expectations, and with a higher mix of console and PC-based revenue, gross margins and underlying profit were well above our expectations. Operating expenses were up 2% on last year, in line with our expectations as we continue to take a disciplined approach to investing in our development teams and new product launches. Operating cash flow for the quarter was negative $112 million, and we returned $378 million to shareholders through dividends and our ongoing share repurchase program. On a trailing 12-month basis, operating cash flow is up 26% year-on-year. Now turning to guidance. We are providing an updated guidance range today, primarily due to the persistent FX rate environment. Just over half of our sales are generated outside of the U.S., and the U.S. dollar strengthened between 7% and 15% versus our largest foreign currencies when compared to rates at the time of our initial FY '23 guidance. As a result, we now expect an FX impact of approximately $200 million versus our initial full-year net bookings guide as the impact will grow in our second half and into FY '24 at current exchange rates. Beyond FX, our business fundamentals remain healthy with strong player engagement trends across our platforms and franchises. We expect strength from our console and PC game franchises to offset most of the impact of the current mobile market softness. In particular, we expect to see the momentum of the FIFA 23 launch carry into the second half, aided by excitement surrounding the World Cup. With these factors considered, we are revising our full-year net bookings guidance to $7.65 billion to $7.85 billion, up 2% to 4% year-on-year or 6% to 9% in constant currency. We expect fiscal '23 GAAP revenue to be $7.55 billion to $7.75 billion and expect cost of revenue to be $1.845 billion to $1.89 billion, below our prior range, reflecting the gross margin benefit from the revenue mix shift due to the relative strength of our console and PC franchises. We continue to be disciplined in our spend while also carefully prioritizing investments to fuel our long-term growth, and we expect operating expenses to be $4.245 billion to $4.295 billion. Accordingly, our updated GAAP earnings per share guidance is now higher at $3.11 to $3.34. Importantly, our expectations for underlying profitability for the year remain unchanged, even after accounting for the FX headwinds. We are also reaffirming our guidance for operating cash flow at $1.6 billion to $1.65 billion, with capital expenditures of about $200 million that results in free cash flow of about $1.4 billion to $1.45 billion. Please see our earnings slides and press release for further cash flow information. Turning to the quarter, we expect Q3 '23 net bookings to be $2.425 billion to $2.525 billion, driven by our annualized franchises plus the launch of Need for Speed Unbound on December 2. For the third quarter, we expect GAAP net revenue to be $1.825 billion to $1.925 billion, cost of revenue to be $560 million to $580 million and operating expenses of approximately $1.08 billion to $1.09 billion. This results in earnings per share of $0.43 to $0.59 for the third quarter. To summarize, our solid second quarter results again demonstrate the power of the EA model. We carry momentum into the second half. FIFA is off and running with the World Cup set to accelerate engagement. Need for Speed Unbound is ready for launch and a strong slate is queued up for Q4. We've extended the Apex franchise to mobile, enabling us to reach more people in more geographies than ever before and expect it to continue to grow over time. And with The Sims 4 now free to enter, we look forward to welcoming more players than ever into this beloved franchise. With our strong pipeline, healthy engagement trends, durable and highly recurring live services model, and a continued focus on discipline and execution, we are well-positioned for the future. Now I'll hand it back over to Andrew.

Andrew Wilson, CEO

Thanks, Chris. In Q2, EA delivered strong engagement and deeply immersive experiences across our portfolio with new EA Sports titles and multi-platform live services powering the business. We have a deep slate of new titles set for the second half of the year. Entertainment is a fundamental human need. And in this dynamic environment, we are focusing on our strengths, providing amazing games and live services that inspire the world to play. With our incredible talent, our growing player network, and more people than ever engaging and connecting through games, we are excited to lead and create the future of entertainment. Now Chris, Laura, and I are here for your questions.

Operator, Operator

Our first question comes from Matthew Cost from Morgan Stanley.

Matthew Cost, Analyst

I have two here. So in an environment where, Andrew, you mentioned, obviously, things are changing, consumers are under pressure. Are you observing any changes in the behavior of users? For example, are people perhaps prioritizing buying a copy of FIFA and maybe spending less on the Ultimate Team? Or is there anything that you've noticed that's starting to shift in the behavior of your users? And then secondly, on the pipeline, I think the fourth quarter is still showing a major title that doesn't have a specific name to it yet. Should we interpret that as there's a title that's tentatively slated for the fourth quarter, but it could potentially be pushed out? Just any color you can add there?

Andrew Wilson, CEO

Yes, great questions. Regarding user behavior, we are experiencing exceptional engagement across our business, especially with key titles like FIFA, Apex, and The Sims. This high level of engagement was already notable during COVID, and many anticipated a significant decline as the world returned to normal. However, we haven't observed that drop-off yet. Engagement with our products remains strong, particularly with the successful launches of FIFA and Madden, alongside the continued popularity of Apex and The Sims. We are optimistic about the future. That said, we will be very careful as we progress through the latter half of the year. We have an impressive lineup coming up, and we feel confident about it, but we cannot overlook the discussions surrounding potentially challenging economic conditions, especially in Europe, which is facing these issues more severely than the U.S. Currently, we have not seen significant changes in user behavior. While we anticipate growth, we need to remain thoughtful, focused, and deliberate in navigating this environment. If conditions worsen, no one is completely immune, but we believe we have shown great resilience, and our focus on creating outstanding games and fostering deep engagement with our community has been effective. On the second point about the title, there is no special meaning behind it; rather, the marketing landscape in our industry has changed significantly over the past five to six years. For instance, when we launched Apex Legends, we only announced it 48 hours before it became available to the community. The major shift we’ve observed over the past decade is a move from television to digital marketing. We are now engaging in more targeted digital strategies, including timing our communications more effectively. Our development and marketing teams collaborate to determine the best time to start sharing information with our community about upcoming titles. We are very optimistic about our lineup and particularly excited about that title. However, our teams are still working on the right timing for its launch and marketing.

Operator, Operator

Our next question comes from Benjamin Soff from Deutsche Bank.

Benjamin Soff, Analyst

Thanks for the question. So pretty exciting stuff with the Marvel partnership. I was wondering if you guys could maybe talk a little bit more about what that might mean for the long-term growth for your business? And the press release referenced at least 3 games, I believe. So what do you think some of the things are that your partner might be looking for as they evaluate whether or not to extend this partnership to additional games?

Laura Miele, COO

Thanks, Benjamin. Great question. When we think about our growth potential in our portfolio, we certainly consider the games that we create, the world, the characters. We also look at the expansion of our player community and the diversity of players that we can bring in. When you think about the breadth of our portfolio from real-world sports to our original IP, including Sims, Apex, Battlefield, Skate, and Need for Speed. We also have licensed IP. You think about Star Wars, Lord of the Rings, and of course, now Marvel, as you mentioned. So we consider this licensed IP an incredibly important component of expanding, diversifying, and casting our net wider to bring new players in. And when we looked at our Star Wars business, for example, we brought millions of players into our community. What we realized and have seen is that over 40% of those players have gone on to play other games in our portfolio. So we consider adding licensed IP as a pretty significant engagement model to our overall community as we grow. And we're just thrilled to welcome the Marvel partners into our creative teams, and we're incredibly confident that we're going to build meaningful content for our fans. We have generally approached these types of creative partnerships in a way to embrace a creative partnership and co-create together. And we've seen great success in our past, and we expect no difference for the future with Marvel.

Operator, Operator

Our next question comes from Omar Dessouky from Bank of America.

Omar Dessouky, Analyst

I'd like to ask about your 4 objectives of play, create, watch, and social and how they're going to affect your business long-term? And then I have a follow-up. So the first question is, are these initiatives you need to undertake in order to keep pace with the growth in the video game industry or exceed growth in the video game industry? And as you build out these features around your core franchises, sort of 5 years out, by what factor could they help your core franchises grow? And then I have a follow-up.

Andrew Wilson, CEO

Yes, that's a great question. As we consider our four main areas of opportunity—play, create, watch, and connect—the first thing to note is that as we evaluate our existing network of over 600 million players and the onboarding of new players, particularly from Gen Z and Gen Alpha, we find that expanding play is a primary expectation. My journey in game development began over 20 years ago when we primarily focused on single-player and couch games. Since then, we've evolved from single-player to multiplayer, offline to online, and from one-on-one experiences to large-scale interactions. We've continually reached inflection points that have transformed play. Looking at our franchises like FIFA, Madden, The Sims, and Apex, we are working to broaden the ways people can play beyond traditional mechanics. We reflect on questions like what players experience in FC when they're not on the pitch, or in The Sims when they visit another player’s home, or in Apex when they explore areas outside the main map. Each time we introduce expanded play choices, it attracts more players and fosters greater engagement within the franchise. Additionally, creation plays a significant role in entertainment today, especially in gaming. Platforms like YouTube, TikTok, and Snap have highlighted the importance of creativity in entertainment and social interaction for these audiences. From creating in The Sims to highlighting moments in FIFA and allowing players to manipulate game environments, more than half of our community engages with player-generated content. This not only attracts new players but also enhances their experience. I've seen how my 7-year-old son discovers new games through player-created content on YouTube. The aspect of creativity and community involvement will be vital for our future as we expand our game worlds to meet the ever-growing demand for content and enhance engagement. Watching gameplay has also become increasingly significant, with billions of hours spent playing and watching FIFA. The same trend is evident with Apex, and we are witnessing this expand across our ecosystem. We are seeing small groups connecting in meaningful ways, spending substantial time playing together and sharing content across traditional game boundaries. As we look at opportunities in these four areas, we aim to attract more players, believing that we can entertain up to 1 billion people through play. We see potential for deeper engagement within our ecosystem, and we anticipate these 1 billion players could engage with us for at least an hour a day. Our experience shows that people invest where they spend their time, and as long as we continue offering innovation, creativity, quality, and value, we can unlock extraordinary financial growth opportunities in the future.

Omar Dessouky, Analyst

It sounds like you're really at the forefront of innovation in the video game industry. My second question is, in the past, like in 2017, you mentioned that you allocate about 25% of your R&D budget to new IP, which may not always materialize. Based on fiscal '22, that amount would be around $400 million to $500 million. Is that still accurate? Additionally, as you develop the necessary toolsets for play, create, watch, and social, should we expect incremental R&D spending beyond that, or will the costs associated with creating those toolsets and initiatives fall within that 25% or the budgets for existing franchises?

Andrew Wilson, CEO

Yes. Great question. The first thing to acknowledge is, and I've talked about 20%, 25% in the past, one, it's not a static number. It changes over time based on what's going on in our various incubation, development, and production pipelines. As we think about investing, the primary investment for us is always going to be building incredible games. That really falls into two key categories: building out these global online gaming communities around our biggest IP: FC, Battlefield, Apex, The Sims, Madden, Skate is coming down the pipe. That's one category of investment for us. A lot of that 20%, 25% goes into new modalities of play and creation in and around those ecosystems that are very proven, very stable, and represent extraordinary opportunities for growth. The second area is around building these worlds, creating characters, and telling these amazing stories, both in our owned IP and in our partners' IP as we co-create the future of entertainment. We really think about interactive storytelling as the future form of storytelling that most consumers will choose as their first form of entertainment. A chunk of that 20%, 25% goes into those things, including everything we do with our partners at Disney across Star Wars and Marvel. The third category, which is a much smaller category but probably represents one of the biggest long-term upside opportunities is how do we think about deriving value from the power of our network beyond the bounds of traditional game experiences? We've got 600 million, we're going to go to 1 billion. I hope that we get to 2 billion people in our network, and they spend 1.5 hours a day in our games, and then they spend another 90 minutes a day doing things outside of our games but are deeply connected to the games that they play. And what is our opportunity there? One such opportunity might be, how do we disrupt the consumption of sport? How do we really think about sport from an interactive viewpoint? If you star in one of our games, but you are a deep sports fan, what other things might be able to do with you with our partners that would fuel your sports fandom? While that's a relatively small investment for us today, it does represent a pretty significant upside to the expansion of what we're able to do with our global network of players and fans around the world over the next 3 to 5 years. As we think about investment more broadly, you shouldn't imagine that this is deep incremental investment. This is about focusing our existing investment in the right areas. We have to acknowledge that not everything we do will work or at least work exactly as we planned. We have to be ready to move, shift, and reshape our organization and the investment that we put into it to drive that future. So you shouldn't expect some giant new incremental spend, but you should expect us to continue to move investment around our company and where we feel like there are really big upside opportunities in global online communities, in interactive storytelling, in hiring the power of our network beyond the bounds of a traditional gaming experience, and where we believe that we have a strong likelihood of success and growth, we will invest behind those things.

Operator, Operator

Our next question comes from Eric Sheridan from Goldman Sachs.

Eric Sheridan, Analyst

I hope everyone on the team is well. Maybe just on the mobile front, we've obviously gotten a lot of questions from investors about the headwinds that have been created by Apple's privacy changes. But obviously, there's a long-tailed opportunity to get mobile right, especially AAA games on mobile over the medium to long term, and there's been a lot of capital allocated towards M&A in mobile. How are you thinking about investing behind mobile? Mobile continuing to grow as a percentage of the mix and how to navigate some of the maybe challenges in terms of growing the user base and monetizing in-game that mobile continues to face in this environment?

Laura Miele, COO

Thanks, Eric. Great question. We see mobile remaining one of the largest platforms in the games business, and it represents a pretty significant growth path for us, particularly with our large franchises. So there are a couple of parts to how to think about this. We are looking at mobile as an expansion multiplier for our big franchises such as FIFA and Apex. For example, when we look at our FIFA mobile business, 75% of our FIFA mobile players exist outside of Europe and North America. So that's significant reach and global impact for our FIFA mobile game. We continue to believe that the mobile business will contribute to these big online communities that Andrew has talked about and has discussed in our vision and strategy and be a multiplier for these gaming ecosystems for players. When we think about a post-ATT world or post-IDFA world, what's most meaningful is having these large communities and well-known brands for strong reach. We are confident in our position to have an impact beyond some of the challenges that some are experiencing in a post-ATT world. As we think about our acquisitions and our standalone business, we continue to see strength in games such as Galaxy, Star Wars Galaxy of Heroes. When we look at Glu, our acquisition of Glu, that includes properties such as Design Home, and Cabot fashion, we believe are going to be strong contributors to our lifestyle Sims business. Then we also have the Tap Sports business that clearly demonstrates our strength in sports. We continue to believe that those will contribute to our strategic growth path as we head into the future. Yes, there have been headwinds in the mobile market, and we continue to believe that mobile as a platform will provide the global player reach for our big franchises. We believe with our big community, it will continue to help us with some of our standalone mobile games with our large communities and big brands.

Operator, Operator

Our next question comes from Mario Lu from Barclays.

Mario Lu, Analyst

The first one is on FIFA. Just wondering if you could help double quick on the main factors that attributed to the 10% unit growth year-on-year? Is it the new features such as cross-play? Is it the upcoming World Cup content? Anything you can add from today would be helpful.

Andrew Wilson, CEO

Yes, I think that the first one around our business is we live in a symbiotic relationship with the real world of football. The real world of football continues to grow. This is the world's game. It's the greatest game on the planet. There might be some who would argue with me on that front. But certainly, as you travel around the world, there are more fans of this sport than any other sport on the planet, and it continues to grow. The engagement, by virtue of technology advancements around access to content continues to fuel growth in the sport itself. As you then think about what our teams do in the context of innovation and creativity in modes, and this is our biggest FIFA yet. We're delivering across all the key leagues and teams and competitions in the world, and we're doing it at incredibly high quality, and we're working closely with our fan base to understand how they want to experience interactive football through our game around the content that they love the most. Over the last nearly 30 years, this team has continued to deliver year in, year out, and it has continued to grow year-over-year. It really is the double multiplier of the growth of the sport itself combined with a team dedicated to innovation and creativity around that sport, working in lockstep with a growing global community. Our expectation is that as we think forward to FC, that we're going to be able to do even more of this both in the context of immersion and authenticity of the very core of the sport as well as the expansion of what the overall experience can embody for football fans around the world.

Mario Lu, Analyst

Great. And then just a second one on mobile, specifically on Apex Mobile. Just curious how it's progressing versus your internal expectations? And are there any early learnings that could be applied to other franchises like Battlefield that will ultimately be brought to mobile as well?

Laura Miele, COO

Thanks for the question. As I mentioned in the mobile response earlier, mobile continues to contribute to the overall growth of some of our biggest franchises and brands. That is certainly the case with Apex Mobile for the overall Apex brand. We're seeing player and geographic expansion in Southeast Asia, Middle East, Latin America. That is exactly how we had hoped for and what we were expecting. We are now 24 weeks into our launch, and while we've delivered a strong experience, the rating on the App Store is quite strong, and we're proud of the quality of the game. Our core players have connected with it quite well. We are now focused on improving our retention for our more casual players, and that is definitely an area of focus for us and an area of improvement. This is very much a natural part of the cycle and process as we bring these games to market. We believe and know that Apex Mobile will continue to help us drive the growth for the overall Apex mobile brand and franchise in the coming years.

Operator, Operator

Our next question comes from Andrew Uerkwitz from Jefferies.

Andrew Uerkwitz, Analyst

Let me ask a couple of questions. I guess Andrew, and maybe Laura can chime in here. When you talk about the 4 big initiatives around social and what not, it seems like The Sims and maybe Skate it solidly in all 4 of those categories. Could you talk a little bit about how that kind of game design process goes as you try to figure out how to incorporate user-generated content and maybe a marketplace and some sort of social fabric that overlays those types of games versus maybe what expectations are going to be from gamers who might think they just want to play a Skate game or just want to play a housebuilding game?

Andrew Wilson, CEO

Yes, it's a complex question that requires more time than I have right now, but we focus on player motivations in our game design. We consider what needs we're aiming to satisfy. One group seeks an escape; they want to leave their daily lives and enter a new world, and that experience is crucial for them. We must account for this across our entire portfolio. Another group wishes to immerse themselves in a world but with a close circle of friends, typically around four to five people. These strong connections form the essence of their experience, which revolves around activities within this small group setting. There's also a group that likes to engage on their own or with others but wants to quickly share their experiences with the outside world. They want to capture and broadcast their cool moves or creations almost instantly on social media. It’s a spontaneous, unpolished way of sharing, akin to a child showing off their skills on the playground. Finally, we have a group focused on creating, curating, and sharing content in a polished manner. This is evident in games like The Sims and Skate, and it's becoming a trend in our FC and Madden experiences, and it's also part of the evolving Battlefield experience. Our design philosophy starts with the player and the motivations they wish to fulfill. By catering to this full range of motivations, we've seen significant growth in our network, strong engagement, and increased time spent in our games, which allows players to forge lasting connections with their friends.

Andrew Uerkwitz, Analyst

Got it. That's helpful. As I consider some of the games that might not fit the typical mold, particularly the single-player experiences you're developing, I'm curious if there's a financial incentive behind this. My assumption is that the predictability of success is greater, whether it's due to licensed intellectual property or other content where calculating the return on investment is easier. It seems you believe there is a consistent demand for these types of games each year.

Andrew Wilson, CEO

Entertainment has always been about creating worlds, developing characters, and telling stories. We have experienced this in various forms over the years, starting from theaters, then books, radio broadcasts, movies, and television. Now, we engage with these stories through games. This is our primary way of entertaining ourselves, especially as we explore great storytelling opportunities. Many people are still eager to play The Sims 4, despite it being nearly a decade old. We acknowledge the community of millions playing, many of whom may not have been born when the game was first released. We see a chance to expand access and welcome anyone interested in experiencing The Sims 4. Over the past year, approximately 90% of our revenue came from additional content rather than the base game. As we consider the future and the evolution of The Sims experience, we believe it's the right moment to enhance accessibility for more players. I commend the team for their efforts to make this happen and support the community. Overall, the community has expressed gratitude and support for this direction and is excited to welcome potentially millions more into the ecosystem.

Operator, Operator

Our next question comes from Stephen Ju from Credit Suisse.

Stephen Ju, Analyst

I think this is a topic we've discussed before, but with the sequel for Sims being developed, I wanted to bring it up again. Considering the substantial body of work in Sims 4, especially with the game being around for 10 years and the amount of content released over time, should we be concerned that Sims 5 might feel a bit empty upon its release? This is something we have previously worried about with Battlefield. How can we approach sequels and follow-ups in general? Does this mean that we need to allow more time for development to incorporate additional content? How should we consider this moving forward?

Andrew Wilson, CEO

Yes, it's a really good question, and I appreciate you using Sims as an example, but I think the question is probably broader than just The Sims. There’s not a one-size-fits-all answer to this question. As we think about our iterative titles that we do each and every year, our objective is to build enough content and enough innovation and creativity that delivers extraordinary value for the amount that our community invests in each title. We have been very successful in doing that, and we commit many hundreds of people on those franchises to ensure that we deliver all of those things, particularly value to our community, to fulfill the expectations they have for what a new title would bring. We have other titles, like those that come out of BioWare that are really about giving time to build out these worlds and create these characters and tell these stories in a new innovative and creative way. Without using The Sims as an example, but using things like Skate as a potential example and maybe others in our franchise, there's also an opportunity, in some cases, to have an existing experience continue while layering in a new modality of that experience on top. What we're going to see with Skate is that you're going to be able to get in there and do all the things that we've been able to do in Skate games in the past. But there's a whole new modality around creation and social connection, that'll be a meaningful part of that game going forward. To answer your question, we're looking at every franchise in its own stead, and we're asking ourselves, what is the right thing to do with respect to this franchise? Some of our iterative franchises are about just getting the right amount of people into a team to deliver innovation and creativity, while others like our BioWare franchise are about giving time to build out these worlds, characters, and storylines. For other franchises like Skate, as we think about the future of Sims, it's how do we hold onto all the goodness of the existing franchise and layer in new modalities and extensions of how you play these games for a growing and changing, evolving, diverse community around the world.

Operator, Operator

Our last question comes from Doug Creutz from Cowen and Company.

Douglas Creutz, Analyst

I was wondering if you could discuss Wild Hearts a bit. Typically, when you have partner titles, they are lower-priced. However, I believe this one is launching at a $70 price point. Should we consider the potential here similar to how we would for a AAA title? Do you think this game has potential for a franchise in the future?

Andrew Wilson, CEO

Yes. So first thing I would say just to differentiate there. I think what we have had is EA Originals, which were lower-priced titles. This was an initiative that we developed to support the local community and the industry growth opportunity overall. What we were seeing was these developers were building these very cool games. They didn't have the means to get to market, nor the ability to continue on because the business model wasn't working for them at least for their first title. We went into the community and said, 'Alright, let’s handpick some great teams who are building really cool games around really cool IP. Let's help fund their development, get them distribution, and give them profits on the back end so they can build the next project.' Most of those have been smaller, lower-priced titles. However, in the company’s 22-year history, we have a long, rich history of co-developing, co-publishing, and distributing AAA full-priced IP. We don't do as much of it anymore because there isn’t as much out there that we think fits the quality bar that can deliver against global community expectations at a full price point. We think Wild Heart is one. It started with what felt like a small idea for us internally, but every time we saw it, we were wowed by what they were doing. The Monster Hunter genre is relatively new and ripe for innovation and creativity. What we see the team doing is all of the things the community is asking for in the genre. The response so far has been really strong. I don't want to get out over my skis on this, but I saw it. I think it's incredible. The community has seen it and thinks it's incredible. How big it can be, we don't quite know yet, but I think there's a path for this to be a really cool opportunity for us, for the development team, and for the community.

Operator, Operator

And that will conclude our call today. Thank you all for your questions and for joining us. You may now disconnect.