This month I made the trip down under to see my friends at Electronic Arts (EA). EA has a group that creates mobile phone apps in Melbourne. I got into Australia a bit early and spent a few days in Sydney with my wife. It was really cool, we did the harbor bridge climb which was a great experience and not as scary as I thought. We also went to a nice show at the opera house, what a great place to see a show too. We also hit Manly beach to take in the Australia beach scene…not exactly Hawaii. Melbourne was great too, it’s a real artsy city with a lot of interesting street art and music. The food was not bad either, so thumbs up for Australia.
Oh yes and while I was there I did a finance class for the EA group. The Melbourne group had been very successful with their mobile games and therefore they are a shining star at EA. It is always great to be at the top of the heap in a large company like EA. The mobile games do well because they have a high margin and are cutting edge in the gaming world. As I did income statement training for this group they could clearly see that their line of business was higher margin than the traditional EA packaged goods business. The digital businesses at EA are a big part of their future. So the Melbourne group is in a good place.
One very interesting part of the mobile business is their ability to get real time revenue, hour by hour, on their products. In their design area they have monitors that show how much is coming in through the application stores by the hour. With each new release the team gets instant feedback on how the base likes the new offering. With a little income statement training the group I taught could see literally real time how their work is generating profit for the business.
With the move to focusing on digital, EA has seen its gross profit margin go from about 50% to over 70%. That has caused the operating margin to go over 20% in the last two years. The 20% margin was a corporate goal for EA three years ago when they were getting about 10%. The group found it interesting that the stock price has tripled over this period of margin growth. It’s a great story for EA.
My partner in training at EA Andy Billings was along for this session and he directed the duality game as usual. Duality is a simulation game developed by the EA University team. It provides income statement training at the game level for those attending the Financial Intelligence course. This game is very effective and a good complement to my material.
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