Q3 2023 Electronic Arts Inc Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the electronic Arts third quarter 2023 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a.
Question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
He would like to withdraw your question Press Star One again I would now like to turn the conference over to Mr. Chris evident Vice President Investor Relations. Please go ahead.
Thank you welcome to Ea's third quarter fiscal 2023 earnings call with me today are Andrew Wilson, our CEO , Chris <unk>, our CFO and Laura anything Osceola.
Please note that our SEC filings and earnings release are available at IR EA Dot Com. In addition, we have posted detailed earnings slides to accompany our prepared remarks.
Lastly, after the call we will post our prepared remarks, an audio replay of this call our financial model and a transcript.
With regards to Canada.
Q4 fiscal 2023 earnings call is scheduled for Tuesday may nine as a reminder, we face 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 January 31st 2023, 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 now I'll turn the call over to Andrey.
Thanks, Chris during Q3, EBITDA entertain hundreds of millions of fans through our games and multi platform live services.
Our teams delivered high quality experiences, reaching global communities, providing a 128 content updates across 36 titles.
We launched two new AAA releases NHL 23 in October and need for speed unbound in December both earning strong reception and positive reviews.
The just released dead space has also earned high price from fans and critics alike being dumped a new benchmark for remix and even one of the best games of all time.
We drove record engagement during the quarter on some of our biggest franchises, even surpassing historical highs delivered over the last several years.
<unk> network also continues to grow now over 650 million.
While we delivered for our players and engagement was strong in the quarter the macro environment remains challenging and impacted Q3 results.
During the quarter, we took measured action to reduce our expenses and we continue to exercise cost discipline further focusing our investments in key areas of growth.
As we navigate the short term we remain focused on what fuels, our business delivering high quality entertainment and driving strong engagement across our global network.
The passion and enthusiasm for interactive entertainment continues to grow for more and more people around the world games, our cherished an authentic way to stay connected with the people they care about build community and find joy through shared experiences.
Across all of entertainment people are diving deeper and engaging further with their favorite franchises EA sports FIFA is at the heart of global football culture, and once again, we delivered strong engagement in Q3 across our entire ecosystem.
Year to date net bookings from FIFA franchise has grown 4%, 415% at constant currency FIFA.
FIFA 23 is pacing to be the biggest title in franchise history delivering record engagement in Q3.
In North America alone unit sales are up over 50% year over year.
FIFA mobile engagement was up triple digits in Q3, and FIFA online in Asia is hitting the highest monthly active users in years.
This engagement fueled strong financial performance.
We have incredible momentum in our global football ecosystem for 30 years, we've been leaders in interactive football and collaborated with the most extensive network of partners spanning the globe.
Our games are interwoven with the fabric of football fandom, averaging 300 million hours of gameplay every month.
Unbelievably excited to take this energy into the future without EA sports UFC brand, we will deliver even more for fans as part of an expanding experience with endless ways to play watch create and connect through their level of football.
Madden NFL is the world's parameter interactive American football experience and one of the most powerful franchises in sports.
We continue to invest in innovation to drive engagement and growth across this mega franchise.
NFL 23 had a solid holiday quarter, driven by ultimate team and Madden NFL mobile launched a new season and multiple in game events for the parent engagement.
With Big moments ahead, like Super Bowl 57, and team of the year Madden NFL continue to entertain millions of fans.
Our EA sports and racing teams are the best in the business the convergence of sports and entertainment is picking up pace through our investments in technology and new experiences will continue to push the boundaries and blurred the lines between the digital and physical by empowering plays to come together expressed their fandom.
And build online communities, both in and around our games.
Our owned IP franchises some of the most deeply engaging and culturally relevant entertainment properties in the world with Mega franchises like apex legends and assumes.
Apex legends has historically had a quite a Q3 as a live service model ebbs and flows against a seasonally crowded launch slate this time of year.
Moving into Q4, we're already seeing a rising engagement as we approach the games full year anniversary and the launch of a new season, bringing highly anticipated updates and fresh content IP.
Apex is one of the few eyepiece in its genre with proven insurance to engage and Reengage players as they play watch and compete.
This assumes is also evolving and growing as a live service in Q3, we took the base game free to enter and welcomed over 10 million new players into the community driving strong engagement.
Our teams are gearing up to add more collaborative ways to further empower our community to unleash their imaginations.
We have incredible opportunities ahead to do more extraordinary things in service of our players and our people, we are making deliberate decisions and reallocating investments to prioritize our biggest growth areas.
Building global online communities around our biggest franchises, telling incredible interactive stories and harnessing the power of our social ecosystem to create meaningful connections.
Our teams are deeply committed to delivering incredible experiences for our players as part of this commitment. We have made the player first decision to move Star Wars Jedi survivors launch date to April 28, the game as a creative and innovative leap forward going further into the experience of a jedi delivering more content more explorer.
<unk> and more fun.
Anticipation for the game is incredibly high and the respawn team known around the world for delivering top quality entertainment is focusing on the final Polish stage to enhance performance stability and most importantly, the player experience.
Given the team these extra few weeks to deliver the best experience for our players will not only result in a high quality game, but puts us in the best position to grow the long term value of the franchise.
We're also making strategic decisions around two mobile titles.
Apex legends mobile one game of the year on both iPhone and Android. Despite this strong start the ongoing experience was not going to meet the expectations of our players after months of working with our development partner, we have made a mutual decision to Sunset. This version of the game, we learned a great deal and have plans to reimagine our connected.
Apex mobile experience in the future.
It is through these learnings combined with a clear franchise strategy that we've also made the decision to stop the development of the current battlefield mobile title. We know our community values are deeply connected ecosystem and our team is focused on delivering the best unified cross platform experience for our players.
We do is designed to inspire the world to play as a company. Our teams have demonstrated that with the culture of creativity innovation and resilience, we can grow it through transformative periods of change and lead the future of entertainment.
As we look ahead, our teams remain focused and disciplined as we reshape our investments toward a future of accelerated content generation increased direct player engagement and deeply connected ecosystems to bring more people into a global community.
We are taking strategic actions to evaluate our cost structure as we navigate through the current macro environment.
Without exceptional talent, our broad portfolio of amazing IP and massive play network, we remain committed to delivering long term value in our business now.
Now I'll turn the call over to Chris.
Thank you, it's Andrew shared we delivered strong engagement high quality titles again in Q3.
Nevertheless, our results were mixed relative to our expectations base.
Based on Q2 trends and leading indicators, we had built our Q3 guidance on four key underlying assumptions first that our player network would continue to expand and engagement metrics remain healthy.
Second we would see strong momentum for FIFA global football franchise.
Third that we would release high quality new games into the market and finally, the apex of the experience its typical seasonal low in Q3.
While these assumptions were Directionally correct net bookings came in short of our expectations, we achieved new highs and our player network.
<unk> healthy engagement trends and delivered a record quarter for the entire EA sports FIFA franchise. However.
However, the performance of new games, despite strong reviews and of the apex franchise was below the levels, we had anticipated reflecting the challenging market dynamics recognizing the softer net bookings trend. We proactively took focused measures during the quarter to reduce our cost and lessen the impact on our underlying profitability.
Now, let's go through the quarter in detail.
Net bookings for the third quarter were $2 3 billion.
One, 9% or 5% in constant currency, driven largely by a tough comp as we lap the launch of battlefield 2042, and by apex performance, partially offset by strength across the entire FIFA ecosystem and the launch of need for speed unbound.
Madden NFL 23 was level with a very strong quarter last year.
Our live services net bookings were down 1% year over year or up 3% in constant currency growth at constant currency was driven by strength in FIFA with rapid growth occurring in FIFA online four and FIFA mobile on a trailing 12 month basis live services, we're 75% of our business.
We delivered Q3 net revenue of $1 9 billion up 5% year over year.
Operating expenses were down 3% year over year or flat on a constant currency basis, driven by lower marketing spend as we lap the battlefield 2042 launch.
Further we reduced cost by just over $60 million by moderating our hiring and prioritizing our variable spend in the quarter.
Operating cash flow in the quarter was $1 1 billion.
And we returned $377 million to shareholders through dividends and our ongoing share repurchase program.
Now moving to guidance as we navigate an uncertain market I'd like to share more context about how we set our Q4 guidance.
First and most important we expect we will continue to execute well on the two most important drivers of our long term success and growth strong player engagement and the production of high quality games like the just released and well review that space.
Second we are confident that EA sports FIFA will sustain and build on the strong momentum that we exited Q3 with.
And third based on our Q3 launch results, we're taking a more measured approach for the highly anticipated Q4 launches.
Next we are committed to operational excellence and being disciplined in our investment decisions. The actions. We've taken during Q3, we will reduce our total <unk> operating expenses by approximately $140 million.
In addition, we will continue to work to prioritize spend broadly evaluate our real estate footprint and focus our investments on our best long term growth opportunities.
Finally, our Q4 guidance reflects the player first decision to shift the launch of Star Wars, Jedi Survivor to Q1 of FY 'twenty four.
It is important to note that while it changes the timing of reported net bookings it does not change the overall lifetime economics, nor our expectations around free cash flow for Q4 for FY 'twenty four.
Now onto our guidance for the fourth quarter.
We are revising our Q4 net bookings guidance to $1 675 to $1 $77 5 billion.
Which reflects the shift of Star Wars, Jedi Survivor to Q1, our decision to Sunset apex mobile and updated expectations based on Q3 trends in particular for launches happening in the quarter. We expect GAAP net revenue of one 7% to $1 8 billion.
We expect operating expenses to be 1.0, 75 to 1.085 billion for the quarter approximately $80 million lower than our previous expectation, reflecting our ongoing efforts to prioritize and focus our investment as.
As a result, we expect earnings per share of <unk> 20 for the fourth quarter.
This Q4 guidance results in fiscal year net bookings of 7.07 to seven $1 7 billion.
We're also revising our guidance for operating cash flow as a result of the updated net bookings guidance to one four to $1 5 billion.
With capital expenditures of about $200 million that results in free cash flow of about one two to $1 billion to $5 billion.
For further details on our fiscal 'twenty three guidance, including our GAAP guidance. Please see our press release.
Before handing it back to Andrew I'd like to provide a few early thoughts on our fiscal 2024.
As we look to next year, we see the main drivers of our business.
Being our durable broad portfolio of live services.
Our newly rebranded EA Sports UFC franchise Star Wars, Jedi Survivor, plus additional titles, we will announce in due course.
Excluding the impact of FX, we expect mid single digit growth on net bookings and low double digit growth on underlying profitability if rates remain unchanged from today that would equate to mid single digit growth for both top and bottom line.
Our business is anchored by incredible brands Evergreen live services high quality games and a growing player network, we will be focused on our investments as we build and scale our business all while delivering amazing experiences for our players now.
Now I'll hand, the call back to Andrew.
Thanks, Chris we drove incredible engagement and delivered high quality experiences in the quarter as Chris shared we are being disciplined and focused on what we can control to fuel our biggest growth opportunities. We are confident in our vision for the future and with our exceptional talent proven IP and growing plan network.
Yes, operating from a position of strength.
Our audiences have an insatiable appetite for interactive entertainment and are engaging more deeply with the experiences. They love the future of entertainment is interactive and no team is better equipped and EEA to deliver amazing games and content to inspire the world to play now.
Now, Chris Laura and I are here for your questions.
Regina, we're ready for questions now.
And as a reminder to ask a question simply press Star then the number one on your telephone keypad. Our first question will come from the line of Andrew <unk> with Jefferies. Please go ahead.
Thank you Andrew Kristen Laura I wanted to.
I would hope you could provide a little bit more color im trying to reconcile some of the comments from the press release and slide deck and your commentary on the one hand, it seems like certain titles are doing extraordinarily well FIFA Sam's, but then in your guidance you guys.
Update.
The expectations for Q4 based in particular around launches in games in Q4, so it kind of implies maybe the smaller medium sized titled Arent performing so one I was just curious if that's true.
Two what gives you the confidence that it's mostly macro.
Competitive pressures across the broader industry.
Sure Hi, Andrew This is Chris.
I can take this one so.
In my prepared commentary I talked about what we saw in Q3 and the specific trend I'd point to is the fact that we.
We talked about strong player engagement and strong and high quality titles, but I also talked about the fact that the.
Highly rated titles didn't perform to the level that we would expected based on historical.
Expectations for title of that caliber and so we're taking some of those learnings and I do think that when we look at all the data and we analyze.
What we saw in terms of demand and results. We do believe that that's a reflection of the overall market conditions that we saw continued to mount throughout the quarter and we've taken those learnings and we've applied those into the Q4 guidance.
Got it and then.
And then just on the mobile.
On the mobile side.
What kind of learnings or you're kind of taking from from <unk>.
Apex mobile because.
So it was game of the year, but clearly have struggled a little bit of engagement.
Is it who made it is it the <unk>.
<unk>.
Two PC based.
Could you share with us kind of the learnings that you've taken away to determine why.
I wanted to cancel this one and cancel the battlefield.
Yes, great question and I do believe we've learned a great deal as we've gone through this and certainly this game was in development for a long period of time is the expectation for the size and scale and complexity of mobile games continues to grow as the platform continues to mature over time.
As we look at it we really kind of compartmentalize into a few key categories first as you point out. This was a really good game built by really good teams and one game of the year on both Apple and Android devices, which is an extraordinary achievement given the amount of games that are made.
But a couple of things also with true inside of that.
One is there is there was a level of <unk>.
<unk> and complexity to apex gameplay in particular, which is very much about what apex is about <unk> of game play and team based play.
That didn't trends like quad as well to mobile devices as we had hoped.
We've learned a great deal from that.
<unk> is the gain wallet really engaged the core deeply and it actually attracted a lot of new users, which we think speaks volumes for the future success potential of the franchise.
Didnt retain them more casual user at the rate that we needed it to and in a game that relies a lot on team Blyth in competitive play liquidity of the overall player base is really really important as you think about the future experience suppliers over time, and then third I think the mobile market continues to be challenging and we certainly.
So we launched into what was a softer mobile market.
With some changing and evolving kind of playa personalities as we move through so as we think about this on a go forward basis.
Take those learnings and we apply the real strengths, which is we know apex has incredible demand from both the core users and new more casual users. We know that we have the underlying ingredients to make incredible game.
We need to be thoughtful about the nature of the KOL game mechanics, and the retention mechanics that we build into the game over time and most importantly, as we look at the mobile market. The biggest new launches that are seeing the most success are the ones that are deeply connected to the broader franchise where.
There is not always cross play, but it's certainly cross progression and a feeling that they're part of a single unified community and a single unified game experience and so as we think about that for the future that will be very very important as we re imagine apex mobile and certainly as we had those learnings from apex mobile and we will developing into battlefield mobile.
We anticipated that will battlefield had also been in development for some time and was making good progress given the construct of that game. It also was probably going to run into some of the same challenges and rather than continue to push against that we wanted to come back take a breath reset and really think about the broad.
Franchise strategy and allowed the leadership to build a true cross platform.
Immersive game experience around a re imagined battlefield in the future. Both of these things represent strong learning opportunities for us on both of these things represent an ability for us as a company to lean into two great franchises why is that the mobile market is more aligned to for the future.
Got it I really appreciate that color. Thank you guys.
Your next question will come from the line of Eric Sheridan with Goldman Sachs. Please go ahead.
Thanks, So much maybe building on Andrews questions I want to come back first to mobile.
How do you think about the array of type of content you have on the mobile side and how much of it is potentially exposed to sort of casual play that might act in a more.
Sort of hyper sort of volatile mode as consumer monetization might be volatile depending on what happens with consumer spending going forward versus maybe some of your sports titles on mobile that have a very different trajectory from a spend perspective, so I wanted to sort of broaden out the conversation to what youre actually seeing on the spend side across an array of MAU.
<unk>.
It really runs the gamut first and then second I think we've seen a lot of folks in the industry talk about pushing titles out out of 22 now and into 'twenty three in calendar 'twenty, three and maybe even into calendar 'twenty. Four is there a broader theme emerging around getting titles right before the launch or are there elements.
Where you need to see the console cycle, possibly be maybe deeper into what.
It has happened over the last couple of years.
Maybe see if the success you want to see what some of the titles how should we be thinking about the broader narrative around content being pushed out across the industry and would you guys idiosyncratically. Thanks.
Okay.
Two solid questions. Let me start and then maybe Chris and lower can provide some color as we get in.
First off on mobile.
A few things that we start with and certainly I think.
We think through on a daily basis, which is while the mobile market continues to be a very challenging market defined success. In it also continues to be the world's largest gaming platform and certainly has the ability to attract more players than any other platform and so for us it will always be a very.
The important part of our go forward franchise strategy. When we think about mobile broadly, we really think about the titles fitting into two key categories. The first category is what you speak to in the context of sports, but it is also true for Sims and apex and battlefield and will be true for skate which is.
How is it part of a broader cross platform global community of play and how do we unite and unify global communities of players around the core IP, regardless of where they play on PC mobile console. This for us represents probably our strongest opportunity in mobile and <unk>.
Certainly where you will see us begin to really invest and when you. When you look at what's been happening with FIFA up triple digits. It's really as we've started to bring the mobile title closer to the coal franchise and start to operate it as a singular business with a unified player community around the world. It's how we are building for Skype. It's how are we going to build for the future of this.
<unk> with these decisions around apex in battlefield. It's also how we will build for those franchises.
That represents an extraordinary opportunity for us to attract a much bigger global community to our biggest IP.
It represents an opportunity to grow monetization on the mobile platform, but it also represents an opportunity.
<unk> alternative ways for our existing core audiences through plan console and PC to play when they're away from those core devices. They have and as we look at the mobile market as a go forward basis, we think that that will be where we will find real strength for that part of our business.
Other part is.
The Standalone mobile native titles, and we have a number of titles that continue to perform exceptionally well star Wars Galaxy of heroes.
Sims some some of the titles that we got as part of our glue acquisition Gulf Clash will continue to invest in those as well, but you should expect that as we think about the future we're going to really layer of investment into our biggest franchise play will continue to drive the long term value of our existing.
<unk> Standalone mobile titles, and we'll probably invest less in new start ups Standalone titles, just because we think thats, probably not where we will find strength in the industry over time.
To hit your second part around title launches and certainly I think we're hearing more about that across the industry and I would just I'd separate what you are hearing from us with everything that you're hearing around the industry broadly.
While it might be.
And Mike might make sense to kind of draw a broader narrative I think for us as we look at it we launched a number of titles in in Q3, and Q4, certainly with dead space and need for speed and NHL some of our smaller titles.
And FIFA and Madden, we've launched an incredible amount of titles on time and a tremendous high quality I think what we saw with Jedi was this is an incredibly large game.
<unk>.
It's both immersive and creative and innovative and the team at <unk>.
Come down the home stretch and really want to get to quality. When we think about quality quality is really a combination of three things.
Innovation creativity, and Polish and that last element Polish the removal of bugs in the removal of potential apply frustration is as important as the innovation that creativity itself.
So as we look at our future we feel that we've been executing extremely well to this point around the titles in the title updates that we've been launching we also feel incredibly bullish and positive around the trajectory of Jedi and when the team came and sat down and said Hey, if you. If you let us have just a few more weeks, we think we can deliver.
Even high quality.
We really wanted to get behind and support them. After all this is an incredible team that with the first iteration of a franchise that they launch they broke all kinds of records. They are deeply committed to the franchise deeply committed to our partners at Disney and deeply committed about players.
And we really wanted to get behind them and support it, especially as it will not impact the overall health of the franchise in fact, it will not only lasted with a better quality, but almost certainly increase the lifetime value of the franchise over time.
Thanks, Andrew.
Your next question will come from the line of Stephen Ju with Credit Suisse. Please go ahead.
Okay. Thanks, So Andrew.
We do have a bit of a setback in the transition to mobile given the developments across APAC battlefield. So.
Naturally this makes us worry a little bit more about how Google is coming along.
Because the thesis at the time of the acquisition was to.
Bring some of the success. It has had in the more shall we say the casual sports franchises. The next morning that dynamics of FIFA Madden et cetera. So can you update us on your progress there.
And I guess FIFA online four of Triple digits, that's a pretty remarkable result, and I presume will be a lot of that is due to the world Cup.
So what do you think the next saw an AD or the Tencent team are doing right.
The property and monetize the World Cup and I think the recent I guess shall we say the last four to eight years.
Have not had sort of an equivalent amount of growth.
Around the World Cup. So I'm just wondering if there are some learnings or best practices that you can export out of Korea and China.
The welcome thanks.
Hi, Stephen this is Lori I'm going to take that Glu mobile question as Andrew framed earlier, we still perceive the mobile market to be significant it's a $100 billion market, it's where gen Z N. Gen Alpha play its the platforms that they prefer it's also a significant platform and growth geographies around the world where we.
We are looking to expand our franchises so incredibly important market.
Now as it relates to Glu, we see this genres in markets in the shooter category. The sports category. The casual creation category, where females primarily play so and of course, the glue content fits very well into these genres in these categories in the mobile market that are still growing and where we still see a <unk>.
Wrong connection clearly, it's fully integrated into EAA in Ea's mobile teams now and so as we think about our future of Sims Army of course consider covet fashion and design home as part of that.
Ecosystem as Andrew has referenced we think about tap sports and the potential that we have globally around our sports business. Those are a meaningful part of our growth there and we also have had some strong talent. Some good tech and have been integrated into our overall EA mobile business.
The integration and the transition has happened and we really consider and look at the mobile business within EMEA and I in a very hallway.
And then as we think about FIFA broadly and more importantly, as we as we think about AFC.
And you think about the growth in that business I think we should think about it on three vectors.
The first factor of course is World Cup and certainly.
We saw very strong growth in our business coincide with the World Cup. The good news about the World Cup and we've been tracking this for many many world Cups as you might imagine is it's not a moment in time, it actually establishes new fans and brings more people to football and while we had some incredible matches during this world Cup and we.
So incredible final that pitted messy versus and buffet.
What that does to establish a whole new set of fans for football on a go forward basis, and so we'll certainly World Cup was a boost for US we expect that that will create an ongoing benefit over the course of time.
The second part of the growth that it wasn't just about World Cup was incredible titles at our teams launched and certainly with what we did in the core FIFA franchise. It was our biggest and most innovative FIFA yet with all that we did in around FIFA mobile, which was up triple digits and all the new event content that we put into FIFA online and how we've really tied that community together.
They are into a global football ecosystem.
Interwoven into the fabric of football fandom, that's a really important part of growth and what we're seeing now is that we have fans coming into the experience not just about experiencing one event or one team one league, but sans community experience really to share their love and passion for football with their fans and really to put it on the.
Align against their rivals and so as we think about what the teams have been able to do we expect that that will continue to drive more growth for us over time.
The third one is football more broadly and if you really track what's going on in the world football in every part of the World is growing it was growing before the World Cup and its certainly growing post the World Cup Premier League La Liga Ligue. One MLS. All these leads are growing in popularity globally and if you look at what happened for us we nearly <unk>.
<unk> our units in North America, FIFA that that represents a significant opportunity for us and is incredibly sports hungry market and so if you take those three things and then you roll that into EA sports UFC that will launch later this year, where we have significantly more control over the nature of the experience and the things that we can do for them.
Fans, we can work more closely together with our partners.
At a league level at a team level out of play a level, we think that well beyond this world Cup and certainly through many will come to come the growth in football for us represents an extraordinary opportunity.
Thank you.
Your next question will come from the line of Omar <unk> with Bank of America. Please go ahead.
Hey, guys how are you doing.
What are you in the past you've given high level.
The assumptions.
As to your expectations for the growth of the PC and console video game software market and I was wondering.
If you have assumptions for 2023 as to how much they might grow.
I don't know that we have given direct assumptions on those markets in time, we might have we might have represents a market data that had been shared with us over time.
We don't have anything to share specifically at this moment other than what I would say is what we're hearing from our partners, particularly in console.
Is that a lot of the constraints around their ability to get product to market is pretty much behind us and that we should expect a fairly strong console supply in the coming quarter and the quarters through the rest of this year. So that represents a great opportunity for us we don't yet know how to quantify that we know that we have been.
Selling into what has been a relatively constrained console market the demand is incredibly high.
Good news for us as we continue to launch quality software.
And you combine that with what we believe will be.
Unconstrained supply of consoles, we think that positioned us well in the coming year with respect to our core HD market.
Okay. Thank you and.
For Chris.
So if I just if I just look at the full year guide of around maybe midpoint about $7 1 billion.
And in about seven 775 zero, which is the guide you guys.
Which is the guide you guys gave.
Last quarter I see a difference of $6 50, if I were to subtract this quarter.
Versus your guide and.
I would get.
About $500 million are pushed out.
And of course, the apex legends, so if I subtract the 130.
For the underperformance in the quarter, and then lets say 20, or so for underperformance and cancellation of apex legends are sunsetting of apex legends.
Again about $500 million left and obviously that 500 million.
Subtraction is not entirely.
<unk>. So I was wondering if you could break that down for us so how much of that roughly 500 million that I'm seeing it.
Star Wars versus FX impact.
As the PC console titles that you think might be softer in Q4, and especially on FX.
It looks like the British pound and the euro are up about 10 points.
When you guided in November .
Which would suggest that FX impact should have been positive.
<unk>.
Okay got it.
I think I followed all your numbers Omar So let me see if I can help so I think directionally. If I followed your math. Your your math is sort of foot if I can put it that way.
The drivers for Q4, and consequently for the full year are in fact.
The exact drivers that I talked about previously which is.
First and foremost the shift of Jedi from Q4 and into Q1 of FY 'twenty four and Thats. The most significant impact on the Q4 number.
Secondly, as you pointed out the performance in Q3 relative to our guidance.
The next one.
And then by extension of that which which.
Which Andrew asked as well earlier.
Which was why did we take in terms of learnings from Q3, and how are we applying the current macro environment and the current market conditions against what we know to be high quality launches in Q4, and that's part of the equation as well into Q4 and then the fourth one as you pointed out is is the sunsetting of apex mobile and so those are the four primary I think you have the floor.
Mary drivers and that equates to the revision in the guidance in Q4.
Thanks, a lot.
Okay.
Your next question will come from the line of Benjamin <unk> with Deutsche Bank. Please go ahead.
Hey, Thanks, guys.
Was wondering if we could dig a little bit deeper into the trends that youre seeing in apex.
And within that context.
Whats your view on whether or not the industry is getting more competitive as a whole in addition to.
<unk>.
The macro environment getting a little bit weaker and then I just wanted to see what you guys thought about whether or not.
This is a franchise that we should expect to continue to grow in the future given your early color for fiscal 'twenty four.
Yes, so I think that.
We talked about in the prepared remarks apex is traditionally a little quarter in Q3 as the live service ebbs and flows with.
Launch slate of new titles around the holiday I think this was a very strong launch holiday slight including FIFA, which performed very well during the World Cup and certainly there was some competitive titles that were very strong that had been very weak in prior years quite frankly, and so there was probably a little built up demand around some of those competitive titles.
And so well.
The.
The franchise still performed incredibly well just not quite as well as with has expected based on our projection of where the competitive landscape would be what.
Already starting to see a resurgence of engagement in the franchise, which is again typical of apex, and we're coming up to our full year anniversary and we got a season launch update coming and we feel very very good about where the franchise is going I believe the franchise will continue to grow we've got a lot of new things that we can do.
While mobile isn't going to be the growth vector today, it will be a growth vector in the future. This new geographic expansion that we will go to there'll be modalities of play that the team will additional modality applied that the team will investigate over the course of time as we've always said, we think about this as at least a 10 year franchise.
We're just coming up to the fourth anniversary, it's an incredibly successful franchise our communities very dedicated to it very highly engaged our expectations that we will have a strong quarter, but we're also being very deliberate around how we plan for the quarter given what we've just seen in Q3 around the macro.
Thanks, guys.
Your next question comes from the line of Eric Handler with <unk> Partners. Please go ahead.
Good afternoon, and thanks for the question.
So you still have a very deep development pipeline going on so I'm curious with the cost cuts that you've made are these temporary cost cuts are they permanent cost cuts and as I think about what you said about an early read for next year sort of mid single digit revenue and bottom line growth.
Does that mean with these cost cuts maybe you can get to a flat.
Operating margin year over year.
Hey, Eric this is Chris.
Ill take your questions I think together in <unk>.
I think it's sort of thematic hits on similar thing. So let me just talk about sort of our approach to what we've talked about on the call, which is really focusing our investments into our best long term growth opportunities I think what you see.
That we did in Q3 and Q4 as well as the influences of what we're going to continue to do in 24 is a reflection of us continuing to be very disciplined about how we how we view and really prioritize how we view our growth opportunities and so they don't we've been very deliberate and very careful to continue to invest in those things that will bring long term growth.
And really being very disciplined about the pace of hiring in some of the variable spend.
That applied to our given the business that we see in the second half of the year as we look forward into 'twenty four I think again just doing the math on the early guide that I gave if.
If we're able to achieve the guidance or the preliminary direction that I gave to a mid single digit topline with better than that improvement on operating line. It would be margin improvement year on year and 24 versus 23 for sure.
Thank you.
Your next question will come from the line of Mike Hickey with Benchmark Company. Please go ahead.
Hello, Andrew Chris Laura Thanks, guys for taking my questions just two for me.
For the early look on them.
On your fiscal 2000 and for growth opportunities just curious if you could speak to the degree that longevity.
The macro pressure youre seeing on your players.
If you think you're going to get worse before it gets better or how you think about the potential for a recession and job losses and how that plays into your <unk> guidance early look that you gave us.
And then the second question.
Obviously, you didn't give the number but I think the FIFA license was rumored to be around $150 million annually.
Curious all of that money has been spent sort of budget 'twenty four in terms of the rights fees with the other partners. It may be incremental marketing spend or do you think there is some cushion there.
And your forward physical in terms of potential savings thanks, guys.
Okay, Yes.
Hi, Yes, I could take certainly take that one.
Art.
As we talked about we're operating at a time when when there is greater uncertainty in greater unpredictability in the market and we saw that in Q3.
As we look forward into FY 'twenty four I would say that the early direction we gave.
Assumes really based on the best information, we have now which is we're not in the business of forecasting markets or GDP or macro, but we do know the trends that we see now that we exited Q3 at <unk>.
Exited Q3 with and that we're seeing entering Q4, and so I would say that the best way to think about FY 'twenty four is that it.
Underlying market assumptions that neither material improvement nor a material worsening in that macro environment that we're operating in and then obviously as we continue to go on and get closer to the quarters, we'll have more certainty with the.
The out quarters that we're looking at.
In terms of the FIFA math associated with the license fees.
The way that I would encourage you to think about it is that in FY 'twenty four it's such an important transition year for what is our biggest franchise and our focus is really about making sure that we build the greatest experience in terms of bringing the players along with us on the journey.
It never has been solely about the.
Profit margins associated with this transition and so.
<unk> focused on making the transition and the launch of EA sports UFC are really fantastic transfer players.
The one piece I would add to that around that and could go with with Chris. It's not so much about what did we pay fee for what we pay a fee from the future.
I think that we will invest meaningfully into the franchise to grow it through this phase again.
We have really said this is not just about a change of the sign on the front of the game, but a real sign of change in terms of what we offer the players over time and we do believe that we can offer a bigger more comprehensive more immersive global football fan experience.
Within our games and beyond the bounds of our games working with.
Our great partners around the world and as we think about investing in that in 'twenty, four and maybe even deeply in 'twenty five we believe it will pay meaningful dividends.
Over the course of time. This is a franchise that we've been investing in for 30 years.
I couldnt be more excited about the next 30 use of the franchise and what we'll be able to do and so I think our focus right. Now is really how do we set ourselves up to realize the fullness of the potential of developing that preeminent interactive football fan community in the world.
Your next question will come from the.
Your next question will come from the line of Matthew cost with Morgan Stanley . Please go ahead.
Hi, everyone. Thanks for taking the questions just on some of the commentary about mobile you talked about some challenges in the mobile game industry and some macro headwinds I guess at this point.
Fair bit of the way, maybe a year end to weakness in the mobile market are you seeing a real differentiation in terms of the stickiness and the predictability of your players on the PC and console side versus mobile. That's question. One and then the second one is just can you quantify the guidance impact of delaying star wars into the next fiscal year. Thanks.
Hi, Matt.
<unk>.
As you said and we measure certainly by engagement and I would say it varies.
Across the mobile experiences we have as we've discussed our strategy and how we are thinking about the future is really around how the mobile platform can contribute to the overall connected ecosystems of franchises and what we're seeing is and Andrew mentioned as players play on the go as Amgen D N Gen Alpha Mark.
<unk>.
The addressable market expands as every year goes by it's going to be very important for us to show up on the right platforms for the right moment and right experiences. So we are seeing in some of our as we discussed on FIFA mobile is we've had we have significant engagement and significant acquisition into this franchise because of the mobile game that we have.
What we're really looking at the incredible assets that we have around.
Casual creator games for our Sims.
Products, our sports games, and really dial that up to connect into the ecosystem because they can be a meaningful contributor of new players engagement and connection into a high Def experience.
Okay, and Matt let me jump in on the question about the guidance so.
We talked about in some form in some of the other questions. The move of Jedi to Q1 is the most material driver of the Q4 guidance revision.
And it's a significant part of the full year revision as well, depending on which which lens that you are taking taking or looking at.
The guidance numbers again, just again reiterating that from a lifetime economic standpoint, the move to Q1 is better for the overall game the ecosystem.
And for the brand and again importantly, given the timing of the original launch in March versus now in in April It doesn't change our cash flow forecast for Q4, nor for FY 'twenty four.
Great. Thank you.
Our final question will come from the line of David Karnofsky with JP Morgan. Please go ahead.
Thank you.
Chris You noted your forward view is based on trends currently or where you exited Q3, but wondering if maybe you could speak just to the phasing of kind of the economic impacts through the fiscal third quarter did you see player engagement or monetization kind of change at all was there anything specific car holiday period, and then just given the news around apex in battlefield any update.
Lord of the rings and Theres still plan to launch this game anything you can say around the soft launch. Thank you.
Great, Okay, and I'll start and then I'll turn it over to Lauren to talk about later.
The shape of the quarter and I think in some of the materials, we talked about how uncertainty mounted throughout the course of the corner I think that that's probably a good reflection of what we saw.
And it is a quarter, where where the results were mixed where we were continuing to watch the strength in FIFA.
Linked in FIFA that occurred throughout the quarter in particular at the end of the quarter.
And then we're also watching the performance of these high quality titles and how they launch and the market reception to that and both from a player and a reviewer as well as our monetization standpoint. So I'd say, we were understanding absorbing and analyzing different data points throughout the course of the quarter.
As I talked about in particular, the things that that led to the outperformance in Q3 and the extension of that into Q4 were specifically related to high quality launches and.
The pattern I would say of recognition of of what we would expect in terms of return versus launches of that caliber and that was very specific to the.
Titles that launch on those dates in the quarter as well as just a macro I would say market gravity that we saw across smaller titles throughout the quarter.
Hi, David to answer your question about Lord of the rings mobile.
As a reminder, this is the team that created Star Wars Galaxy of heroes, which has been one of our most successful mobile games and we are over a $1 billion in net bookings on that they are currently actively working on motor. The rings are in soft launch currently and so we expect a full launch on that mobile game on this coming year.
Okay, great. Thank you all for joining us for this quarter. We appreciate the support we appreciate the good questions and the engagement today and we'll speak to you next quarter.
That will conclude today's meeting. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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