Electronic Arts plans to spend big on research and development as it "leans heavily" into its biggest mega-budget franchises.
EA is gearing up for a huge FY2022 with guidance of $7.3 billion net bookings and an all-time high of $6.8 billion in revenues. A slew of live service-powered digital games will spark this growth, including a myriad of annualized EA Sports titles like FIFA, Madde, NHL, and the new PGA Tour, as well as heavy-hitting billion-dollar shooters like Apex Legends and Battlefield.
These new games will also be cross-gen releases that launch on both PS4/Xbox One as well as next-gen PS5 and Series X platforms for maximum exposure, availability, and monetization potential. This acceleration is made possible by higher R&D spending from EA, which reached its highest point in history in FY2021.
EA's R&D spending is proportional to its net revenues for the period; the more revenue it makes, the more it spends on R&D. FY2021 was a record period for revenues so it was also a record year for R&D spending.
According to EA's financials, the company spent a total of $1.7 billion on R&D, which includes significant optimizations in its internal Frostbite engine technologies as well as sever infrastructures and other experimental tech as part of its SeeD division (machine learning, AI, etc.).
Typically EA spends about 25% of its total-year revenues on R&D. The more EA makes, the more it spends on R&D. In FY2021, however, EA spent 33% of its total-year revenue values on R&D, the highest ratio of spend-to-revenue in the last 10 years.
EA's R&D spend vs revenue ratio on a quarter-by-quarter basis. Q4'21 had the highest quarterly R&D spend in history and a 46% ratio.
EA also spent nearly half (46%) of Q4'21's revenues on R&D (roughly $468 million).
Remember that R&D isn't just for heavy-hitting premium releases. EA is embracing a huge new three-part plan that puts emphasis on mainline games, mobile ports, and new engagement/business models. This R&D spend is used across all facets of its business.
FY2022 is expected to deliver record $6.8 billion net revenues and we should expect this year's R&D spend to likewise increase to record highs.
More on EA's FY2021 earnings call:
- EA: Battlefield 6 coming to PS4, Xbox One, not next-gen exclusive
- Apex Legends earnings hit $1 billion, made $600 million in FY2021
- EA expects Apex Legends to make $750 million this year in net bookings
- EA outlines new three-part plan responsible for $7.3 billion guidance
- EA isn't ready to give up on last-gen consoles, no next-gen exclusives in 2021
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