Videogame maker Electronic Arts Inc. experienced a modest increase in gaming demand during the holiday season. This growth was largely driven by the success of its popular "EA Sports FC" soccer franchise. However, the company also signaled a slowdown in a key demand metric for its fourth quarter.

Fiscal Fourth Quarter Forecast

Executives at EA projected fiscal fourth-quarter net bookings, which serve as a measure of physical and digital sales, to range between $1.625 billion and $1.925 billion. This forecast is lower than the $1.946 billion in net bookings reported for the same period last year. The previous year's results were bolstered by the growing popularity of soccer following the men’s and women’s World Cup tournaments.

Full Fiscal Year Outlook

EA anticipates net bookings for the entire fiscal year to fall between $7.389 billion and $7.689 billion. This is slightly higher than the previous forecast of $7.3 billion to $7.7 billion issued in November. The company's fiscal year is expected to conclude towards the end of March.

Stock Market Reaction

Following the announcement, EA's shares dropped by 6% in after-hours trade.

Life after FIFA Partnership

These results come at a time when EA is adjusting to a major change - the dissolution of its long-standing partnership with FIFA, soccer’s global governing body. Additionally, the broader videogame industry has experienced a slowdown after a surge in digital demand during the pandemic.

Fiscal Third Quarter Performance

For the fiscal third quarter, which concluded on December 31, EA reported a net income of $290 million, or $1.07 per share. This marked an improvement compared to the net income of $204 million, or 73 cents per share, in the same quarter of 2022.

Net bookings for the quarter increased by 1% to reach $2.37 billion.

High Performance of the "EA Sports FC" Franchise

In its earnings release, EA highlighted the impressive performance of its "EA Sports FC" franchise. The company stated that the franchise exceeded expectations in Q3 and achieved a net bookings growth of 7%. This growth was particularly noteworthy considering the prior year's results included the World Cup. Stuart Canfield, Chief Executive of EA, expressed confidence in the continued momentum of the FC brand transition.

Videogame Industry Faces Challenges Amidst Boom and Bust

The videogame industry has experienced a rollercoaster ride of demand over the past couple of years. Initially, the pandemic resulted in a surge of interest in gaming as people found themselves stuck at home. However, this demand soon gave way to a boom in concerts and travel as restrictions eased. Now, the industry is facing a two-year period of inflation that has led to layoffs.

Notable companies, such as Tencent Holdings and Microsoft Corp., have announced job cuts in response to these challenges. Tencent's subsidiary, Riot Games, and Microsoft's Activision Blizzard and Xbox divisions are all affected.

Heading into the holiday season, analysts expected strong sales driven by the popularity of EA's sports games. However, they also anticipated challenges due to tougher comparisons with the World Cup bump experienced a year ago. Additionally, EA's termination of its partnership with FIFA in 2022 posed further obstacles. In response, EA has introduced "EA Sports FC" as a replacement for its FIFA-branded games.

JPMorgan analysts predicted robust holiday sales for EA's "Star Wars Jedi: Survivor." They also projected continued popularity for "EA Sports FC" within the company's Live Services segment. Analysts expressed interest in upcoming releases and expected EA to provide more details on these games.

However, industry experts, such as Benchmark Research analyst Mike Hickey, emphasized potential challenges for EA's popular shooter game, "Apex Legends." Hickey pointed out that while the game reached its peak at $1 billion in annual net bookings, its performance has recently declined due to reduced player engagement and strong market competition. The success of Fortnite was especially evident during the #FortniteOG event on November 5th, which attracted a staggering 44.7 million players and accumulated 102 million hours of gameplay. Hickey suggested that this could further exacerbate the growth challenges faced by Apex Legends.

The videogame industry continues to navigate these boom and bust cycles, constantly striving to meet consumer demands and remain competitive in a rapidly evolving market.

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