Although the videogame maker missed Wall Street estimates of revenue, the company highlighted in an earnings call Tuesday, Oct. 31 the tremendous growth of its digital platforms. If EA continues to grow its digital platform, retailers of console games like GameStop could suffer, analysts warn.
EA's digital net bookings amounted to $579 million in its second quarter, up 19% since last year, according to CFO Blake Jorgensen. Digital net bookings, or online and mobile downloads, now account for 63% of its business. The biggest drivers? Battlefield 1, Ultimate Team and Madden NFL 18.
"We were very pleased and a bit surprised at the strength of digital downloads," Jorgensen said in the earnings call. "It's great to see the movement towards digital." The trend, experts said, is fueled by consumer demand for convenience, faster internet speeds and greater storage capacity on gaming consoles.
But EA's digital blessing creates "an elevated risk profile for GameStop," according to Baird Equity Research's Colin Sebastian.
"An acceleration into downloads would highlight the urgency for GameStop to diversify into other categories," such as collectibles, he wrote in a Wednesday, Oct. 31, note.
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GameStop shares already dropped 28% this year. In March, it announced that it would be shuttering 2% to 3% of its stores, or up to 190 storefronts. Earlier this week, the company announced it would expand its $60 PowerPass subscription plan, in which members can rent as many pre-owned games as they like for six months, and at the end of the six-month term, they can keep one of the games.
The good news is that PowerPass has the potential to drive more in-store visits, Sebastian wrote, and "monetize 'long tail' used inventory, broaden the visibility of used games among customers, and, perhaps, help GameStop offset some of the digital headwinds."
Some industry experts anticipate that video games will go fully digital.
"Eventually, we expect all games will be 100% download and streaming," Piper Jaffray analyst Michael Olson told TheStreet in early March.
For now, EA claims its digital gain doesn't mean it's turning on GameStop.
"Despite the fact that we've talked a lot about digital, we still want to have great relationships with our physical retail partners out there," Jorgensen said, when asked by an analyst about GameStop.
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