Analysis Electronic Arts Inc. Electronic Arts Inc.

Analysis Electronic Arts Inc.
Electronic Arts Inc. (EA) is a publishes as well as a provider of video game software . It develops,
publishes, and distributes games for personal computer, mobile phones, and console markets such as
Xbox, PlayStation, and the Nintendo WiiU and Switch . Its intellectual properties (IP) are marketed under
brand names that include famous titles such as Battlefield, Star Wars Battlefront, Dragon Age, The Sims,
and Mass effect . So, while EA is maki ng near record profits, their recent decisions have been holding
them back from realizing their true potential. Tracking factors such as r evenue, stock price and other
financials , and their controversial business strategy will reveal how EA is becoming a v ictim of its own
success . It is in the opinion of the writer that the firm is fine financially but other factors in its strategy is
leading to increasing unpopularity in EA among consumers.
From a purely financial standpoint , EA is currently outperforming against the industry as a
whole . Revenues relative to their closest competitors have been rising steadily in the past decade. These
competitors are mainly other publishers with their own IP. These are top publishing companies such as
Activison, Take -Two In c., Ubisoft, and Nintendo. Th is expansion of revenues coincides with the massive
growth of the video game industry in general with games becoming more and more accessible to the
everyday person. EA also generates most of its revenue from both the sales of its games and its
microtransaction policies. These policies have pushed EA’s profitability to new heights as evidenced by
the massive increase in the stock price of EA in the past few years.
However, revenue alone does not tell the whole story of the fi nancial health of a company. The
chart on page 3 compar es EA to its closest competitor Nintendo . Based off revenue in 2017 and 2018
they are nearly equal which shows how close the two companies are in competition. Nintendo ‘s
revenues have been Declining si nce 2010 after the massive success of the handheld Nintendo DS, and
the Nintendo Wii console wore off, and lackluster release and sales figures of the Nintendo WiiU. With

the release of a new console, the Nintendo Switch. This is a healthy change in direct ion for the company
with current predictions estimating revenue higher than the previous year for the first time in eight
years.
However , comparing ratios such as the current, quick, and debt -to- equity ratio show that
Nintendo has a higher ratio in all th ree categories. This shows that Nintendo has more cash than EA and
no debt. Nintendo has enough cash reserves to run a deficit for the next 38 years and still be in sound
financial footing . It is in the opinion of the writer that t his security allows Nintendo to become more
experimental with their products in the past few years and the market has awarded them with a
quadrupled stock price. EA on the other hand, has revenue steadily increasing every year . However, this
is balanced out by the enormous d ebt that EA as accumulated due to borrowing money to acquire new
IP such as BioWare ‘s Dragon Age series , as well as a portion of Ubisoft. So, with EA being very profitable
and in healthy financial standing, the market has rewarded the company with a massiv e increase in
shareholder price.
It is interesting to note that the stock performances between EA and Nintendo almost mirror
one another from 2016 onward, yet the recent drop that is shared by the two is because of rather
lacking showcases at the E3 confe rence. However, where the price of Nintendo has returned somewhat,
the price of EA has stayed in its massive sell off. So, if EA has solid financials, how is it that the markets
don’t reflect this? The answer is that its not all about the financials of EA , but rather how the customer
views the company. It is because that Nintendo has a better reputation than EA that consumers and
investors have more faith in it than EA, and that puts it in a good light in the stock market. EA has been
making blunder after b lunder ever since the shift in its strategy has become more focused on
microtransactions. Because of this EA now has a reputation of being so greedy that government
regulation needed to be involved, as well as the games released have been considered medioc re at best
and will be covered in the strategy section.

Exhibits

Electronic Arts Nintendo
Current Ratio 34.81 35.79
Quick Ratio 3.84 4.08
Debt -to-Equity Ratio 21.59 0.00
Inventory Turnover N/A N/A
Total Asset Turnover N/A N/A
Profit Margin N/A N/A
Return on Asset 12.80 9.00
Return on Equity 24.10 10.86
Year Electronic Arts Revenue Nintendo Revenue
2017 $4,845,000 ,000 $4,389,090,000
2016 $4,396,000 ,000 N/A
2015 $4,515,000 ,000 $4,582,820,000
2014 $3,575,000 ,000 $5,549,330,000

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