Q4 2023 Electronic Arts Inc Earnings Call
Okay.
Good afternoon. 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 fourth quarter and fiscal year end 2023 conference call I would now like to turn the conference over to Mr. Stuart can built senior Vice President Finance and Investor Relations. Please go ahead.
Welcome to Ea's fourth quarter and fiscal year end 2023 earnings call.
With me today are Andy.
Drew Wilson, <unk>, CEO , Christopher <unk>, our CFO and Lora.
Oh <unk>.
Please note that our SEC filings and earnings release are available at IR Dot.
Dot com.
In addition, we have posted detailed earnings slides to accompany our prepared remarks.
Lastly, after the call we will post that prepared remarks, and audio replay of this call and a transcript.
With regards to our calendar our first.
First quarter fiscal 2024 earnings call.
For Tuesday August 1st.
As a reminder, we post a schedule of upcoming earnings calls for the fiscal year on our IR website.
This presentation and our comments.
<unk> 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 may nine 2023, and disclaims any duty to update them.
During this call the financial metrics.
With the exception of free cash flow will.
We 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 Andrew.
Thanks, Joe.
Hope all of you are well.
I will start by sharing how inspired and proud I am about teams.
Against macro uncertainty and constant change, we navigated the year with resilience and determination.
Fiscal year 2023, we showed the strength of our business delivered for all players and lived up to the promise of our values to every <unk> employee. Thank you.
Over the fiscal year, we executed across our business delivering high quality games launching seven new releases and providing over 450 content updates across 51 titles.
Appetite for interactive entertainment experiences is at an all time high and without player network expanding to nearly 700 million, we delivered record engagement across some of our biggest franchises.
<unk> is leading the future of interactive entertainment in a dynamic industry, where new audiences, new technology and new media trends are reshaping the world around us.
Ill interactive experiences are at the heart of global football culture, and fandom and are a testament to our strategy shopping by 30 years of passion creativity and innovation.
Fiscal year 2024 stands to be another important year for EA sports, we will build on the massive momentum in our global football ecosystem delivering expanded enhanced experience for fans EA Sports F C.
In April we unveiled the brand identity envisioned for EA Sports FC by every measure. This was the biggest brand moment ever created at EA, reaching billions of potential players generating thousands of media hits within days and inspiring record positive sentiment amongst our players with the support of hundreds of partners athlete.
Leitz leagues and federations and clubs.
With EA sports UFC, we are building a fan first future for global football and we cannot wait to share more in July .
Already the world's preeminent American football experience Madden NFL delivered an extraordinary amount of content in and around the game in fiscal year 2023, driving deep engagement and becoming the best selling title in this franchise's history on console and PC.
Madam NFL Twentyfold will build on this excitement offering even more fun and immersive gameplay.
Our fourth quarter saw a resurgence in apex legends performance Tees.
16 powered by massive game enhancements like a new class system transformed the way KOL legends played.
Our strong community of players responded favorably lifting peak engagement more than 20% from the previous season.
The resilience of apex legends reinforces its unique position as an IP with a pallet to consistently entertain players as they play watch and compete in an evolving world.
Fiscal year 2023, apex entertain an average of 20 million monthly active users. This player loyalty is fueled by our responsibility to continuously expand and improve the player experience.
No other game in the industry celebrates creativity and individuality quite like the Sims this diverse and passionate community has fueled imagination and champions self expression since its launch in 2014 growing to over 70 million players worldwide and counting.
Our talented team at Max's studios is using the power of creation and connection to shape culture.
Developing new experiences for the Sims four to take entertainment to Unimaginable Heights.
To continually inspire the world to play we are focused on blockbuster storytelling and history and leadership of bringing together culture defining IP with interactive entertainment creates incredible opportunities to build an unrivaled portfolio bolstered by powerful collaborations.
These are fundamental ways to bring more players into our global network through the lasting power that only blockbusters can deliver.
Just 11 days ago, we delivered on this priority with the launch of Star Wars Jedi Survivor.
This incredible game has received widespread positive reviews, and an 86 Metacritic score on console and has been called a game of the year can tend to buy multiple press outlets.
Our Dev teams are working with the community around some high end PC specs and beyond this that has been a strong launch.
Within the first few weeks millions of players have joined Cal Casters and BD one in their rebellion against the Empire.
Star Wars Jedi Survivor is storytelling at its finest.
Which is central to the game success and to our credit collaboration with the Walt Disney Company and Lucasfilm. The game is pure blockbuster entertainment and fans have embraced the story about Jedi games as a central part of the Star Wars Saga, demonstrating how great interactive entertainment can grow and deepen the fandom of an.
Credibly powerful IP universe.
Games other social networks of the future to amplify the power of community. We are innovating across a set of social and cradle tools in and around our games.
Our strategy is to help players make new friends build a social network and create community.
He's in games, social experiences were rolled out in FIFA 23.
Players are interacting with a new feature set engagement increased over 150%.
Our data shows these innovations are driving results in our business and confirm what we know to be true.
Having more friends and building stronger friendships in our network leads to more time spent playing and connecting.
As a cornerstone of our priorities of growth, we will continue to implement these tools across our portfolio.
With a strong close to fiscal year 2023, we are executing on our core strategies and our focused investments are positioned to drive results across our content and services pipeline.
We remain committed to capturing our biggest opportunities and delivering long term value in our business by doing more amazing things for all players and communities.
Now I'll hand, the call over to Chris to provide additional details on our business.
Thanks, Andrew and Hello, everyone.
Our fiscal year 2023 results again demonstrated the fundamental strength of our portfolio. The resiliency of our live services business model and our ability to execute in a disciplined manner.
We again outgrew and uneven market took decisive actions to sharpen our focus and finished the year with a very strong fourth quarter performance.
Our fiscal year was highlighted by significant milestones across our portfolio in the six months since launch EA sports FIFA twenty-three has surpassed lifetime sales of EA sports FIFA 22.
Apex legends continued to engage players around the world and following our decision to make the base game free to enter in October since hit historic engagement highs with tens of millions of new players in the community.
Throughout the year, we continued to take deliberate actions to focus our company and align our business more closely with the strategic priorities that Andrew outlined culminating with the actions we announced in late March to rationalize our games portfolio and optimize our real estate footprint.
As a result in the fourth quarter, we recognized a charge of $155 million with the remaining charges to be recognized during the first half of fiscal 2024.
For the fourth quarter net bookings were $1 9 billion up 11% or 15% in constant currency our results exceeded our expectations and reached a new fourth quarter high driven by record life services performance and strength in full game EA.
E Sports FIFA significantly outperformed as net bookings grew 31% year over year are up 37% in constant currency.
Apex legends also delivered a stronger quarter than anticipated as players returned for season 2016, and our fourth anniversary collection event.
Our live services net bookings were $1 6 billion up 9% or 13% in constant currency significantly outperforming our expectations as EA sports FIFA five services delivered a record quarter.
FIFA Ultimate team net bookings grew 20% year over year or up 26% in constant currency and saw all time high engagement FIFA online four was up 62% or 71% in constant currency and FIFA mobile grew triple digits year over year and reached its first 100 million dollar net bookings quarter.
Apex legend saw improved performance following a competitive third quarter rebounding to a low single digit year over year growth quarter in constant currency and the Sims four exceeded expectations as a new expansion pack and free base game updates resonated with the growing community.
Our mobile business, excluding the strong FIFA mobile results stabilized and delivered in line with our expectations. Our strategy is focused on enhancing player experiences by connecting our largest brands across platforms, delivering blockbuster mobile experiences and optimizing our portfolio for profitable long term growth.
We delivered fourth quarter net revenue of $1 9 billion up 3% year over year.
Operating expenses were up 5%, excluding our fourth quarter restructuring charge are people costs increased as we continued to invest behind our portfolio and we also saw higher marketing spend to support new releases. These increases were partially offset by prudent management of other variable spend.
Now, let me talk about our full year performance, our net bookings were $7 3 billion down 2% or up 1% in constant currency outperforming uneven market conditions and industry headwinds in mobile.
Our net revenue was $7 4 billion for the year and diluted EPS was $2 88.
We generated $1 6 billion in operating cash flow and returned over $1 5 billion to shareholders.
Now, let me turn to the outlook.
Our fiscal year 2024 outlook reflects many of the trends we saw in fiscal year 2023, we expect engagement across the portfolio to remain very healthy and our highly reoccurring life services business showed great resilience again.
We continue to operate in a competitive market with changing macro conditions and as such we will continue to be focused deliberate and disciplined as we execute against our strategic priorities.
For FX if rates remain unchanged, we expect a headwind of nearly two points for net bookings and six points for underlying profit growth net of hedges relative to last year.
We expect fiscal 2024 net bookings to be seven 3% to $7 $7 billion, roughly flat to up 5% year over year or up 1% to 7% in constant currency built on a strong foundation of our evergreen live services growth and our massive online communities. The introduction of EA Sports F C.
Blockbuster storytelling Star Wars Jedi survivor.
We expect EA sports UFC to deliver low single digit net bookings growth building on its momentum growing again on top of a record fiscal year 2023.
We expect cost of revenue to be one seven to $1 $8 billion, reflecting gross margin expansion driven by our mix of revenue across royalty bearing licenses platform and digital.
We expect operating expenses to be four three to $4 $4 billion with continued focus investments in our business to drive long term growth.
As a result, we expect underlying profitability to grow faster than net bookings.
We expect operating cash flow of one seven to $1 9 billion.
And capital expenditures of around $275 million, which would deliver free cash flow of about 1.4 to $1 $6 billion. The business continues to be a strong generator of cash.
We expect to continue to repurchase stock under our current authorization, which expires in November 2024.
We expect fiscal 2024 net revenue to be 7.3 to $7 $7 billion and earnings per share of $3 30 to $3.81.
Now moving to our outlook for the first quarter, we anticipate net bookings for Q1 to be one five to $1 6 billion up 15% to 23% or up 19% to 27% in constant currency, primarily driven by full game sales of Star Wars Jedi survivor.
For the first quarter, we expect net revenue of $1 eight to $1 9 billion cost of revenue to be $350 million to $370 million and operating expenses of approximately 1.07 to 1.09 billion, resulting in earnings per share of 98 to $1 14.
Our business is in a strong position propelled by strong brands massive online communities blockbuster storytelling and evergreen live services.
Our efforts over the last year to align our teams more closely with our key priorities has led to a more focused scope of work, which will help us deliver on our multi year growth aspirations.
Now I'll hand, the call back to Andrew.
Thanks, Chris.
Our active entertainment is at an inflection point the industry is expanding the number of players you expect to grow significantly over the coming years, the audience is becoming more diverse with cultural and generational trends accelerating content consumption.
<unk> is expanding player base means reaching them on devices everywhere through disruptive technologies for EIA. These transformations represent opportunities to grow today and over the long term.
We have the best talent in the industry to execute against our long term strategy.
Through their passion and creativity that we will continue to deliver on our mission to inspire the world to play.
We are focused on bringing more amazing games to more people around the world inspiring them to build community celebrate shared fandom and have joyful experiences.
The future of entertainment is interactive and no team is better equipped to lead this transformation than now.
Now, Chris Laura and I are here for your questions.
Our first question will come from the line of Andrew <unk> with Jefferies. Please go ahead.
Hey, Thanks for taking my questions I, just got one kind of on June and then kind of a big picture question.
Chris could you help me reconcile a little bit the June guidance I think a year ago, you had one title in the June quarter, you have five this time and.
And then clearly there is some strong momentum and live services. So is.
Is this cautious guide is this is there something in the live service momentum slows down just a little bit more color you can give on June would be would be great. Thank you.
Hi, Andrew So youre talking about the guide for Q1.
Q1, yes, yes, Sir yeah.
Right so.
Specifically our guide in Q1 is driven really by the performance of our live services business and and as you pointed out we have some year over year things on a new launches that are driving that performance.
But it seems lately five games should should drive more than couple.
A couple of hundred million dollars right, if I am doing my math right.
Yes.
Go ahead.
No no no sorry.
And we're happy to sort of take you through sort of.
Okay. My line on that but it is a relative to the size of the launches I think that youre, referring got it. Okay. That's great. Thank you and then just kind of big picture.
Some of the trends that are that I think you saw in the previous quarters around kind of weakness in smaller titles.
I think you guys are some of your peers called out this idea that gamers are kind of coalescing around the biggest titles.
Are you still seeing that and then secondarily and maybe more importantly.
How has that impacted where and how you invest in future titles.
Yes. Thank you Andrew I think it's a great question as.
As we look at the market place and as we look at consumer trends I think there's two things happening right now.
One, which and both kind of end up in the same place, but I think one is more short term and one has as much longer term more longer term ramifications.
First is that anytime you go through the history of our industry that there is any kind of consumer softness or consumer trepidation around spending also macroeconomic uncertainty what we typically see is consumers move towards the biggest brands in the biggest titles in the most recognizable experiences.
And that really comes down to kind of general consumer behavior, which is they have less less money that they are willing to risk against new things or smaller things or unknown things and typically our brands like FIFA like Madden like the Sims have performed very well at these times.
However, as you know is.
It's a moment in time and our expectation is that you know as we move through this particular phase and as consumer spending continues to strengthen over time there'll be opportunities for new titles and new brands.
But what we don't think that will out why is this movement to these broader social ecosystems that our games games as platforms.
The very cold we are a games company, but what we are seeing is the evolution of the definition of a game.
You hear us talk about play watch create connect.
And it's really that last piece of that connection piece that is driving the future of our business and as we think about building FC for the future as we think about building the same as for the future and battlefield, and apex, and Skype and and and other properties in our portfolio, we really think about that in the context of building games.
As a platform or content as a platform to drive these long term businesses across play watch create connect we think this will be longer lasting than the present macroeconomic climate and certainly that's where we're investing meaningful parts.
About time money and resources over the coming years, that's not to take away from the opportunity to launch incredible things like Jedi, which we've just done which tell unbelievable stories in an interactive world and become a meaningful part of a bigger brand IP like we have with Star Wars, but certainly as we balance out our investment over time.
A great portion of our investment will go into these building games and experiences that entertained massive online communities.
We'll then follow up with a more focused deliberate investment against telling blockbuster interactive stories, and we think that there'll be opportunity for investment over time with the extension of these social and credit tools both for the in game experience and beyond the game experience broadly and Youll see us do some more of that particularly.
In the world of EA sports in the coming year.
Okay.
Thank you I appreciate that color that's a good answer thank you.
As a reminder press star one to ask a question. Our next question comes from the line of Benjamin Goy Deutsche Bank. Please go ahead.
Hey, guys. Thanks for the question.
Just wanted to dig in a little bit on the expectations for SP. Obviously, you guys had a record year for the franchise and Youre expecting low single digit growth.
Coming years, so just wanted to better understand the drivers there and if you see any challenges or execution risks that you go through the rebrand.
<unk>.
I'll touch on this broadly and I'll, let Chris kind of talked a little bit more on the details of how we're forecasting and planning our first and foremost we're coming off an extraordinary year football as a sport is growing globally. We think the World Cup did great things for continuing to grow the sport broaden.
Lee and the fan ecosystem around the sport I think what we've been able to do with with Al football franchise is really become central to.
The fabric of football culture.
And the results that you are seeing is really demonstrative of that importance that we play in that fan football culture.
My belief and my belief all along has been that as we move through this rebrand and certainly you know as we talked about in the prepared remarks. This rebrand was probably the single biggest rebrand moment in the history of <unk> in the history of the company and almost certainly the most successful by a fairly wide margin. We've never seen this kind of <unk>.
<unk> energy in these kind of positive consumer energy a rent a launch of this nature, particularly for a business that we've been in for 30 years and so I continue to believe that moving through this rebrand actually presents us extraordinary opportunities for growth that I've talked about this before in the context of what we can do for the player broadly how we.
Can extend the play watch create connect experience how we can extend the relationships that we have with commercial brands that are equally valuable in football fan culture over time.
And I think that as we move through this year and you see what we're doing in the context of the game experience and what's going on around that we feel very bullish and very confident.
Sound growth opportunities of our football business, but we're coming off of a pretty big year, and it's a pretty big comp.
And so I'd hand off the Christiana talking through how we're thinking about that.
Thanks, Andrew.
Exactly as Andrew said, we're seeing an incredible year for FIFA, we've talked about extensively on the call.
Actually FIFA for the full year across all platforms grew 20% this year in constant currency and that's off of a 22 that also grew double digits and so the momentum in the business has been fantastic as we look forward into the launch of Etsy.
Andrew said, we're really focused on the player experience and making this a great experience, where we're pleased to be able to grow the business again off of two consecutive years of double digit growth.
Yeah.
Okay, Great and then just one on the guidance I think last quarter, you talked about mid single digit operating income growth and if I'm doing my math right I think the midpoint of your guide implies more of a low single digit growth rates. So first of all is that correct.
What changed is it FX or maybe something else yes.
Yeah sure as we gave the guide at the beginning of <unk>.
Q4, we went through a number of our planning assumptions that we shared with you in terms of what we thought in terms of player engagement quality of games and execution I would say the biggest difference between now and then is honestly the performance that we had in Q4, we had an incredibly strong Q4 exceeding our own expectations on a number of fronts that we talked about in the prepared comments and.
As we look forward into 'twenty, four or our outlook in our planning assumptions for 'twenty for in many cases remain unchanged in the sense that all of the things that we focus on which is quality of games execution and delivery of.
Our resilient life services, those remained quite stable and consistent and unchanged and I would say that the.
Comp is just quite a bit higher.
Okay makes sense. Thank you guys.
Yeah.
Your next question comes from the line of Matthew Thornton with Truth Securities. Please go ahead.
Hey, good afternoon, thanks for taking the question.
Maybe first one star Wars, Jedi Survivor, Andrew or Chris just wondering if you could maybe give us a little color.
A little more meat on the bone just maybe how that's faring relative to its.
Predecessor, and how to think about that title for the balance of the year.
And then just secondly on mobile we've got the Lord of the rings title here in the first quarter curious how material you think that can be to the full year in mobile more broadly it looks like.
It's starting to perk up a little bit or stabilize a little bit maybe just a little more color on what youre seeing in that market as we head into fiscal 'twenty four thanks, so much.
Yeah.
The Jedi piece, and then I'll, let Chris touch on Lord of the rings and maybe Laura can.
Can give you a little bit more color on the launch of that and what we expect.
On Jedi again, we're overjoyed, we made the bold decision to move the title six weeks to give the team the opportunity to really get to the quality of the game. They want it and of course, you know as you heard in our prepared remarks. The quality has been very very strong and many of them are climbing that's going to be a game of the year contender and certainly playing.
And speaking of people applying it it represents incredible storytelling in the Star Wars Universe, and so I think we're building on where we were with Jedi fallen order and where and it's certainly been a very strong launch for us.
It's very early I think we're 11 days in at this point.
We're in a different kind of market dynamic, but I would tell you it's pacing very strongly.
Against our expectations and against Jedi fallen order.
Great. Thanks.
The only thing I'd add to what Andrew said about Star Wars is that.
As exactly as we said we're incredibly excited about the launch. It. This is a title that we expect to contribute to our financial performance for a very long time and so we're in early days.
In terms of the Lord of the rings mobile launch again another title. We're very pleased that in terms of the quality of the game and the expectations around it we are being modest and prudent in terms of the underlying implied financial performance within our guide consistent with what we've talked about in terms of launches of some.
For our other titles over the last couple of quarters.
Our next question will come from the line of Clay Griffin with Moffat Nathanson. Please go ahead.
Hey, good afternoon, thanks for taking the questions I had a question on apex.
I noted that.
Overwatch is experimenting with its first 10 of IP crossover collaborations what have you.
Correct me, if I'm wrong, it's not.
Been a lever that apex is really pulls I'm curious.
Just to get your sense of the pros and cons of maybe going down that road I don't know if it makes sense.
Strategically for apex, but just kind of the broader point is just trying to better understand kind of what you guys want to do with with apex in terms of the monetization or engagement as it relates to those those types of activities.
Yes, I think what you've heard from us and certainly the performance in Q4 is testament to this.
Apex is one of the strongest franchise in our industry and certainly one of our strongest franchise when we talk about.
Content as a platform of game experiences of our platform apex is certainly front and center as we think about our business model, we have a substantial player base with incredible retention and that's just the nature of these free to play environment. There are ebbs and flows and I think what is unique to apex is its ability to engage and reengage.
Through those ebbs and flows.
Continuing to invest in the IP broadly both geographically from a platform extending modalities apply extending story.
For what it's worth I don't think anything's off the table.
Think that as we think about game IP today, it's kind of like comic book IP of 20 or 30 years ago. This is the IP that Gen Z and Gen Alpha perhaps identify mostly with I think the opportunities for us to continue to grow and expand and stretch the nature of the experiences that we're able to offer to a global player.
Base.
The next decade and beyond.
Unfettered.
Great. Thanks, Ed.
Yeah.
Yeah.
Yeah.
Our next question comes from the line of Mario Lu with Barclays. Please go ahead.
Hi, everyone. This is joey on for Mario Thanks for the questions.
Two if I can so is there any color you can provide on your mobile revenue outlook in fiscal 'twenty for that.
Embedded within the guide and then separately.
For EA sports UFC I appreciate the color on the slides that fiscal 'twenty four bookings anticipates low single digit growth for the title are you expecting any margin benefit that will slow down to the bottom line now that they see for licenses gone. Thanks a lot.
Got it thanks, Thanks Joey.
Let me address your first question I'll start there and then and then.
Sort of missed the first part of your second question. So if you could repeat that here in a second but.
But in terms of the mobile growth for next year, our expectations are that mobile business in aggregate will be down year on year.
After FY2023 a large part of that doing related to the decision to sunset the apex mobile title it and so that obviously is in the comparable for 'twenty three won't be in the comparable for 24, and that's a big piece of the of the mobile business revenue performance expectation for 'twenty four and can you go ahead and repeat your second question.
Miss the first part of it yeah, Yeah got it.
So are you guys, just expecting any sort of margin benefit.
That will slow down to the bottom line.
Without this FIFA license for exports.
Got it okay, it's actually I missed the part year, which game you're referring to so thank you for that clarification.
We think about the transition to etsy.
We really are focused on the player experience in making this transition a great one for our fans around the world, we are going to invest behind that across our brand rebrand launching as well and so as you think about the total economics because of business I would I would not anticipate it being materially different year on year.
Got it. Thanks appreciate it yes tomorrow morning, I liked what I, just like to add some context, a little bit more context, maybe on how we're thinking about mobile our mobile growth and even our future beyond this coming year.
Clearly, we've always seen in our mobile grow in the past decade from $11 billion to $106 billion globally, which is massive and significant.
Well, we'd like to share is that the industry preceded that growth with a philosophy of user acquisition or development for that matter at any cost and how we're looking at things now is that that era is over the economics didn't make sense and we were really focused on the industry was kinda fill it isn't that wrong things, how we are looking at it and how we eat.
We are prioritizing and our new management and kind of a refined approach is around profitable growth.
This means equal attention to topline and bottom line in the market and our business dynamics, it's easy clearly the focus on top line and I'm just look at that growth area, but when we look at our business and our new management approach we have seen.
Mobile profitability across our portfolio in the last two to three years increase and specifically when you look at Glu. We've increased from increased three times from FY 'twenty two to FY2023 and our profitability. So we were really pleased that under our management and how we're thinking about things that we are we are still focused on growing the overall business in a profitable way now a couple of things Andrew.
You mentioned and it has outlined incredibly well about this connected ecosystem in our connected communities mobile is going to play a meaningful role in that when we look at our FIFA successes, we've talked a lot about in this call already but it's just so strong and it's been such a meaningful contributor to the overall ecosystem players that play FIFA HD and mobile.
<unk> generate a far higher daily average revenue than FIFA players, who only play on just one platform. So we know that there's a meaningful contribution that mobile can play in the overall ecosystem. The second area that we're spending a lot of time in is our existing live services, So and we talked about earlier about the we launched our Lord of the rings game, clearly and that has really modeled after.
Our Star Wars Galaxy of heroes game, which has generated nearly $1 $5 billion over the lifetime.
We look at the market and we evaluate what's working when you look at the top charts and mobile the top 10 charts and mobile only two entrants have come in the last two years everything else has been there for quite a long time, so we see a pretty significant runway and continued growth potential in our existing live services, we have plans for Saddam base.
We have simply of design home care leeway of FIFA, we have tap sports, we have a really meaningful life service business that we see a really strong runway and still again and at growing that in a profitable way.
I appreciate the color that's all for me thanks.
Your next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.
Thanks, so much for taking the question, maybe if I could go back to ask another big picture. One obviously there continues to be a lot of debate in the industry about distribution and content companies and vertical versus horizontal scale in the industry and just wanted to know.
As we get deeper into 2023 and even against some of your longer term thoughts how are you thinking about <unk>.
Scale, both from a distribution standpoint, and from a content creation standpoint, and how that factors back in the possible capital allocation for the company over the medium term. Thanks, so much.
Great question.
You might imagine we spend a great deal of energy thinking through this puzzle.
I think on balance that what we have done as a company over the last 40 years has navigated various distribution modalities.
From cartridge to disk floppy disk cartridge countries to disk you know disk to digital digital to live service and our expectation is that we'll continue to evolve and we think we're at the forefront of that particularly as you think about our live services business.
When we think about scale broadly I think there were there were three core elements to scale.
One is the scale of our network the amount of applies that we interact with.
Each each year and each month and as we talked about in prepared remarks, we've just hit 700 million, which is an extraordinary amount of people and represents.
Some of the some of the greatest scale in and around our industry.
Second area of scale of course is is meaningful IP and.
And what we've discovered over time is that our biggest brands continue to get bigger and as we invest in them and.
And this year as we take more ownership over a football brand with FC, but certainly FC in apex, and the Sims and battlefield need for speed and so many of our great brands that there is a level of portfolio scale that gives us optionality for the future.
The most in our industry are an entertainment broadly just simply do not have the benefit of but there's another element of our business that I think is the most important.
And that is how people.
The scale of teams that we have that can deliver titles and content and live services year in year out.
<unk> continued to do that through the ebbs and flows of our industry and through the dramatic consumer trend changes and distribution changes and platform changes you know many other companies have tried.
Not many have succeeded as it turns out and as we look to the future as we see that interactive entertainment is becoming a more and more important important part of entertainment broadly I think that our scale. Our teams scale is actually one of our greatest strengths our ability to launch the number of EA sports games and updates.
Every year, our ability to take apex 200 million people, our ability to take the seems to 70 million people our ability to bring battlefield back in an entirely new way in the future and reinvent and rethink what scale might be as a consumer connection platform around Skype culture.
There are very few companies if any.
Now industry or an entertainment more broadly that can do that at the scale that we can do it and its and its inherent in who we are as a company we invest deeply in it.
The culture of our organization in really supporting creators and I think that as we move forward in entertainment.
The combination of <unk>.
Our network.
And more importantly, our teams gives us the kind of scale that means that we have.
Unbelievable opportunities for growth and certainly opportunities for success as we embark in what will be a new competitive marketplace.
Thanks, Andrew.
Your next question comes from the line of Stephen Ju with Credit Suisse. Please go ahead, okay. Thank you so Andrew.
Can you talk about the connected ecosystem as well as Bob cluster franchise is it seems like the complexity to develop a really successful franchise is only ratcheting higher and hence there is probably a higher level of risk.
Around all of these projects as well so.
So do you think you will allow development teams and say the non sports games.
Our lead times to make sure the quality is high and the risk to franchise damage is minimal.
Yeah, I think it's a great question and I go back to some some of the comments we made earlier, which is as we think about the notion of a game.
The definition is evolving pretty dramatically.
So when we think about time for development. It is.
Not just the creation of a world or the development of characters or the telling a story, it's really about how do we build this as a platform that drives long term live service business over a 10 plus year period, and I think as we as we think about supporting and investing in and growing.
<unk> al al creating capabilities have developed the capabilities of our studio capabilities, that's really where we're investing meaningfully and on balance yes, we will give them more time, and we will let them evolve how they build and what they build and how they launch their games over time, but it's really not just about the complexity of games.
It's really about the changing nature of what it is that we're building, but more importantly, the changing nature of how we derive value from that development over the long term and so where we once built games in one year or two years, and then monetize them over five weeks of five months now games games as a platform at <unk>.
<unk> longer but the benefits are exponentially greater than what we're seeing out of FC and what we're seeing out of apex, what we're seeing out of the seams, which again launched in 2014 is meaningful return over a decades long life cycle and as we set ourselves up for the future that's going to be a meaningful part of how we invest in our core.
Company, how we invest in our content and services that we provide to players and how we support our development teams to do that.
Your next question will come from the line of Mike Hickey with benchmark. Please go ahead.
Hey, Andrew.
Hey, guys. Thanks for taking my questions just two from me.
First one just how you're thinking about.
Industry consolidation.
No.
Yes divisions Yogurts blotch here, what you see.
Patients with the broader industry consolidation Andrew.
Second question not intended to be.
Soft ball questions here, but curious on AI.
And development thinking about opportunities challenges winners losers. It seems like you guys have been very proactive.
Already starting to see the success of AI on development, but just curious what youre doing today, it's a pleasure finding early learnings and how you think about step.
Step up growth opportunity over the long term thanks guys.
Yes, great Great question, Let me, let me touch on the first part and I'll hand over to Laura to provide a little bit more detail on the AI part in terms of what we're doing so first as it relates to consolidation.
I'm sure you recognize this is a question I get asked a lot.
I almost never allowed to answer that question as it turns out what I would say is I don't know, what's going to happen with Activision and Microsoft again, we continue to be Microsoft's biggest partner I think we're the number one publisher on their platform. So whether that deal goes through or not is not really material to us broadly we think.
We have the scale again back to our network.
And our talent.
<unk> to navigate the future and lead the future of entertainment.
And compete in a marketplace, regardless of whether that deal goes through or not.
Longer term will there be industry consolidation will it be broader entertainment consolidation, if I was predicting the future over the long term I would say that's an almost certainty at some level.
Would love for us to have the scale to be a meaningful consolidator in that space I think that we have tremendous assets with respect to the future of entertainment.
But as it stands today I think that we're indifferent.
As to whether that goes through or not we feel like we have an incredible strategy. We feel like we have an incredible opportunity and whether it goes through or not we will continue to be the number one publisher on the Microsoft platform.
As it relates to AI.
I think that again as an industry.
We are probably going to be one of the greatest beneficiaries of AI broadly.
I think that it will allow us to do what we currently do more efficiently.
<unk> to actually do more things as we think about being creators our ability to use AI to augment our incredible teams and create even more entertainment for an audience that has an insatiable appetite for what we're doing and then ultimately to allow AI to help all our.
Our players and our fans create content now worlds represents significant opportunity for us.
One of the things that we're also very cognizant of is there also fees around AI.
Of course, the fear of displacement of the workforce.
Something that we read a lot about and we talk a lot about and you know as we think about every revolution over the course of time from the agricultural evolution through the industrial evolution and on there has been displacement of the workforce in the near term and then meaningful increases in workforce opportunities over the longer term and our hope is that <unk> represents.
The same opportunity and we're working very closely inside of our company to ensure that our people benefit in that why and actually facilitate them to do more things.
Of course, then there is the notion of ownership of data and who owns the output of these AI models.
We have.
We have the benefit being around for 40 years, and having extraordinary amounts of data from which we can use and Laura will talk a little bit more about that and then lastly of course. It's this notion of what about people you know bad actors using AI and I think what our plan will be used to work with others in our industry all of us in entertainment others in technology and other things.
Governments and regulators over time to help the laws keep up with the pace of AI, so that our consumers our players our fans.
Aren't subjected to bad actors unfortunate behavior as a result of AI in our industry.
Yeah, Hi, Mike and great questions and am Andrew framed it framed the AI and picture incredibly well and there's a few things I can add them clearly AI has been a cornerstone of innovation for years, and we have a rich history at AA with AI I mean, as we look at this next wave of innovation and technology, we see it.
It to be a powerful accelerator for key areas in our business and as Andrew mentioned, we are incredibly optimistic actually about our unique competitive advantage given our scale given our data.
Put us into AI models will create differentiation protecting our data or having protected IP that we can.
Generative content from we have a rich library and history of asset. So we really like how we're positioned and also keep in mind that we have we have great partnerships and we talked a lot about F. C. Today and we are you know we did a partnership with the La Liga and Theres Hawkeye data that we're able to use in our game that is not going to be available.
<unk>.
Open in an open public marketplace. So again, we really like our position in the at the advantage that we have given our history and who we are and we're thinking about the advantage of this next wave of technology as the accelerator in game development for players and player experience and as we also think about truly life services at scale.
So in game development, you would imagine the velocity of content creative iteration is going to be advantaged.
Advantage greatly by having really smart content tools, and Andrew mentioned, the creator content and lifelike animation real time text to speech for players and what that will mean for them in the experiences they have.
As we think about live game support at scale, and there's going to be some really great.
Imagery detection.
<unk> detection economic modeling that we're going to be able to apply as we continue to grow. These connected ecosystem. So we are pretty optimistic and excited and inspired about this new wave of AI and again, we have a rich history of it and we're very optimistic about the years ahead and what it means to our business.
Yeah.
Awesome. Thanks, guys. Good luck.
Our final question will come from the line of Doug Crudes with TD Cowen. Please go ahead.
Hey, thanks.
Just wondering if you could give an update on how the various projects that are associated with the battlefield IP are progressing and maybe.
How that how that plays into some of the things you said earlier about giving giving your big franchises time to gestate, so that they're great when they come out thanks.
Yeah, I mean, we don't have any date announcements or feature announcements. If that's the question certainly this time, what I'd say is I think we've.
Put together an extraordinary creative leadership team I know, we've got the team gathering actually this week in Sweden I had a call. This morning with some of the leadership and they are very bullish on how that's progressing I think we've got.
Extraordinary confidence in that team and extraordinary confidence in the progress, they're making against the future of that franchise.
And I come back to we're not just building a game we are building a platform content as a platform to drive live services.
The decades to come and so as we continue to move through this process that becomes appropriate we will share more.
The future of battlefield, but but it is firmly implanted in that first pillar of our strategy building games and experiences that attract entertain massive online communities.
Cross platforms across business models across geographies, and we think that battlefield is going to be a meaningful part of our future and we will share more time share more.
As time progresses.
Okay, well thank you.
Thanks, Doug.
And that was that last question. Thank you for being with US. Thank you again to all of our extraordinary teams who delivered an unbelievable Q4 in the face of some macro uncertainty and we have set us up for a very very strong FY 'twenty four and of course, congratulations to the Jedi team, having just launched and extraordinary.
Larry blockbuster inside one of the biggest Ips on the planet So Youll next quarter.
And that concludes today's meeting. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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Okay.
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