Gross profit expected to reach 74.9% in fiscal 2018
Electronic Arts (EA) expects its gross margin to be 74.9% by the end of fiscal 2018. It was 73.2% in fiscal 2017, 69.2% in fiscal 2016, and 68.3% in fiscal 2015.
EA’s gross margin has steadily improved over the years compared to its level of 62.3% in fiscal 2014. In fiscal 4Q17, EA’s gross margin expanded 4 percentage points, primarily driven by product mix and digital revenue growth.
In fiscal 2012, EA’s Digital Business segment accounted for 29.3% of its total revenue. Its gross margin was 63.1%, and its operating margin was 9.5%. Its operating expenses in fiscal 2012 totaled ~$2.3 billion with earnings of $284.0 million and free cash flow of $105.0 million.
These business metrics improved in fiscal 2017. EA’s Digital Business segment accounted for 62% of its revenue. Its gross margin expanded to 73.2%, and its operating margin expanded to 25.3%. Its operating expenses in fiscal 2017 were ~$2.1 billion with earnings of ~$967 million and free cash flow of ~$1.3 billion. The growth in EA’s Digital Business segment was driven by mobile, extra content, and full game downloads.
Impact of free-to-play and mobile purchases
EA’s strategy is a shift from a premium price model on mobile devices to a model of in-app and free-to-play purchases. The company’s strategic shift toward digital and mobile games and its cost control measures have enabled it to outperform the market’s expectations.