By Sarah E. Needleman 

Electronic Arts Inc. reported the strongest June quarter sales in the videogame company's 38-year history on Thursday, as pandemic lockdowns resulted in fewer options for people to stay entertained and connect with friends.

Net bookings, a key industry sales metric that excludes deferred revenue, shot up 87% from a year earlier to $1.39 billion for the publisher of blockbuster franchises such as Madden NFL and Apex Legends. Net income fell 74% in its fiscal first quarter due to a nonrepeating tax benefit, but adjusted profit more than quintupled to $1.42 a share.

"The quarter was so wildly beyond our expectations," Electronic Arts' finance chief Blake Jorgensen said in an interview. "Normally it's one of our quietest quarters."

The health crisis has been a boon across the $149 billion global games industry, bringing back lapsed players, attracting newcomers and driving already heavy gamers to play more often, industry executives and analysts say.

Electronic Arts' peers, Activision Blizzard Inc. and Take-Two Interactive Software Inc., are forecast to also post strong financial results for the period when they report earnings next week. Analysts say the publicly traded publishers should have all benefited from players spending more money on virtual perks such as digital costumes for characters. Collectively, the companies are projected to more than double their adjusted earnings from the year-earlier quarter, according to analysts polled by FactSet.

Electronic Arts and Take-Two also likely got a lift from delayed starts for professional sports, said KeyBanc Capital Markets analyst Tyler Parker. The companies make the sports-simulation franchises "FIFA" and "NBA 2K," respectively, and broadcasters such as ESPN showed people competing at them. Such games are "probably the closest substitute right now and people are probably playing more," Mr. Parker said.

Investors have been bullish on the companies' prospects, with the share prices of all three industry giants rising an average of 27% over the past three months through Thursday. That compares with a more than 11% rise in the S&P 500 index. "They're all going to have an amazing quarter, " said Wedbush Securities analyst Michael Pachter.

Other large companies in the games space have also reported significant growth in recent weeks. Microsoft Corp. had a 65% increase in Xbox content and services revenue in its most recent quarter. Ubisoft Entertainment SA -- the Paris-based company behind blockbusters such as "Assassin's Creed" -- last week said it had record quarterly net bookings, crediting a boost in sales from stay-at-home orders world-wide.

A surge in users for Roblox Corp., maker of a platform with millions of free games, has put the company's third-party developers on track to more than double their earnings this year from 2019, the closely held company said Tuesday.

The pandemic hasn't been the only driving force behind game companies' growth. In recent years many publishers have shifted away from selling console and computer games for a one-time upfront fee to making those games free, with the option for players to repeatedly purchase low-cost digital goods and services. Other companies have opted for a blended model, charging an upfront fee while enabling in-game purchases. That has helped publishers generate more revenue from older games because people tend to plunk down more cash on digital add-ons the longer they play.

Electronic Arts' "Apex Legends" and Activision Blizzard's "Call of Duty: Warzone" are free to play, while Take-Two's "Grand Theft Auto Online" is free with the purchase of "Grand Theft Auto V." All three blockbuster games sell digital goods, also commonly referred to as microtransactions. The companies have been adding more free-to-play mobile games to their portfolios as well, an effort to capitalize on the fastest-growing segment of the videogame market.

Mark Rossi of Westbury, N.Y., said he has been playing games more often since March because the pandemic has prevented him from being able to enjoy his other pastimes with friends, such as going to the movies, playing hockey and seeing Broadway shows. He said he joined Microsoft's videogame subscription service called Xbox Game Pass for $4.99 a month and estimates he has been spending triple the amount of money he normally spends on digital goods inside games such as "Valorant" and "Sea of Thieves."

"I've been trying to stay in and my interactions with friends have been mostly through games," said Mr. Rossi, a 33-year-old sales professional. "It's a way for us to do something together without putting anyone's health at risk."

A key question going forward is whether game makers will be able to sustain their recent growth, especially if unemployment numbers decline or more consumer businesses reopen, such as movie theaters, bars and sports venues. On Ubisoft's latest earnings call, the company's finance chief, Frédérick Duguet, said there was some moderation in spending in June and July after "an exceptionally strong" April and May.

But with the new coronavirus still spreading in many parts of the world, including the U.S., and next-generation consoles due out later this year, the global videogame industry is poised to keep growing, analysts say.

Electronic Arts raised its implied full fiscal-year guidance for adjusted profit to $5.25 a share from $4.90 a share and adjusted revenue to $5.95 billion from $5.55 billion. Mr. Jorgensen said it marks only the second time in his nearly eight years as finance chief in which he has increased the company's outlook upon issuing first-quarter results. "We are also conscious that the world is still in a really difficult place and the economy is only getting worse," he said.

Game publishers expect Sony Corp.'s new PlayStation 5 and Microsoft's new Xbox Series X, due out later this year, to be meaningful sales drivers that offer the chance to engage users with their newest content. Spending on game software world-wide is projected to climb 9.3% this year to $159.3 billion, according to estimates from Newzoo BV. That would be up from a 5.2% increase in 2019, according to the analytics firm's report from this past spring.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

 

(END) Dow Jones Newswires

July 30, 2020 16:50 ET (20:50 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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