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EA and Activision Look to Improve Their Profit Margins

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EA: Gross margin of 72.1% expected in fiscal 2017

The rise in digital revenues for gaming giants Activision (ATVI) and Electronic Arts (EA) has positively impacted their profit margins. Electronic Arts expects its gross margin to be 72.1% by the end of fiscal 2017, rising from 69.2% in fiscal 2016, 68.3% in fiscal 2015, and 63.4% in fiscal 2014. 

In fiscal 3Q17, EA’s gross margin rose 6.1% to 55.1%, primarily driven by its product mix and digital revenue growth.

EA’s digital business accounted for 29.3% of EA’s total revenues in fiscal 2012. EA’s gross margin was 63.1%, with an operating margin of 9.5%. Its operating margin has since improved to 28.5%. 

EA has been looking to shift from a premium price model to a model of in-app and free-to-play purchases. The company’s strategic shift toward digital and mobile, as well as toward cost controls, enabled the company to outperform market expectations.

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Operating margin of 35% for Activision in 2016

Activision’s non-GAAP[1. generally accepted accounting principles] operating margins have increased from 31% in fiscal 2015 to 35% in fiscal 2016. Activision’s digital revenues increased from 54% of total revenues in fiscal 2015 to 74% of revenues in fiscal 2016.

Activision beat earnings estimates, improved profit margins, and achieved revenue growth over the last few quarters, primarily driven by the shift to digital as well as its robust gaming portfolio.

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