EA Q1 FY26: Revenue Holds Steady as Rising R&D Costs Squeeze Profits

Electronic Arts (EA), a titan in the video game industry behind massive franchises like EA SPORTS FC and Apex Legends, recently released its financial results for the first quarter of its 2026 fiscal year. For investors and gamers alike, these quarterly filings offer a crucial look under the hood. Let's dig into the numbers from their latest 10-Q filing to see how the company is performing.

The headline story is one of steady revenue but tightening profit margins, as rising costs, particularly in game development, are making their presence felt.

A Tale of Two Revenues

At first glance, EA's top line looks stable. The company reported total net revenue of $1.67 billion, a slight 1% increase from the $1.66 billion generated in the same quarter last year. However, the composition of this revenue tells a more nuanced story.

• Full Game Sales: Revenue from full game sales (both digital downloads and physical copies) jumped a healthy 16% to $289 million. This suggests continued strong demand for their marquee titles.
• Live Services and Other: This is the company's largest and most critical revenue stream, comprising in-game purchases, subscriptions, and other ongoing content. This segment saw a 2% decline, falling to $1.38 billion from $1.41 billion last year.

While the growth in game sales is positive, the slight dip in the much larger "Live Services" category—the engine of recurring revenue for modern game publishers—kept overall growth muted.

To visualize how EA's revenue flows through its various costs to the bottom line, the following chart breaks down the income statement for the quarter.

The Squeeze on Profits

While revenue held steady, profitability took a significant hit. EA's operating income fell 26% to $271 million from $364 million a year ago. The primary driver of this decline was a 9% increase in total operating expenses, which reached $1.12 billion for the quarter.

The biggest factor was a 12% surge in Research and Development (R&D) expenses, which climbed to $706 million. This single category now accounts for a staggering 42% of EA's total revenue. This highlights the immense and growing cost of creating and maintaining the blockbuster games and complex live services that consumers expect. As competition intensifies and technology advances, the price of innovation continues to rise, putting pressure on margins.

Cash Flow and Shareholder Returns

The cash flow statement reveals another interesting dynamic. Net cash provided by operating activities saw a dramatic 86% drop, from $120 million last year to just $17 million this quarter. This was largely due to changes in deferred revenue—cash collected from players for future services that hasn't been recognized as revenue yet. A decrease in this balance suggests the company recognized more revenue from past bookings than it added in new ones.

Despite the lower cash generation in the quarter, EA remained committed to returning capital to its shareholders, spending $375 million on stock repurchases and paying out $48 million in dividends. This was funded from the company's substantial cash reserves, which stood at $1.63 billion (including short-term investments) at the end of the quarter, down from $2.25 billion three months prior.

Final Thoughts

Electronic Arts' latest quarter paints a picture of a mature company navigating a highly competitive and expensive market. The stability of its massive revenue base is a testament to the power of its brands. However, the sharp increase in R&D costs and the resulting squeeze on profitability is a clear challenge. The slight contraction in the all-important Live Services segment will be a key metric to watch in future reports. For EA, the game is no longer just about generating revenue; it's about managing the escalating costs of staying on top.