GamesBeat

EA's loss narrows, but it still needs bigger hits

Electronic Arts said that cost-cutting helped narrow its losses and make up for a big drop in revenue in its second fiscal quarter ended Sept. 30. But the big independent video game publisher had fewer hits than it needed and has reduced its profit outlook for the current third fiscal quarter, spooking investors in after-hours trading.

EA’s stock price fell 4.3 percent in after-hours trading to $15.50 a share. Before that, the stock rose 2.5 percent to $16.20 a share during regular trading on Tuesday. EA reported a GAAP net loss of $201 million, or 61 cents a share, for the second fiscal quarter ended Sept. 30. That compares to a loss of $391 million, or $1.21 a share, a year ago. GAAP revenue was $631 million, down from $788 million a year ago.

Non-GAAP revenues are viewed more closely since they include online revenues during the quarter. On a non-GAAP basis, EA’s net income was $32 million, or 10 cents a share, compared with a profit of $19 million, or 6 cents a share a year ago. Non-GAAP Revenues in the quarter were $884 million, down 23 percent from a year ago but above the company’s own guidance of $775 million to $825 million. On a non-GAAP basis, analysts were expecting a loss of 11 cents a share on revenue of $811.6 million.

In the past couple of years, EA has invested heavily in making better quality games under the leadership of John Riccitiello, chief executive of the Redwood City, Calif.-based company. Each earnings call is like a referendum on that big bet. Unfortunately, EA hasn’t had as big a hit rate with its new efforts as it needs, given the higher development costs associated with its drive for better quality. EA’s fortunes are worse than average for the video game industry, whose U.S. sales are down 8 percent year to date.

Operating expenses in the quarter were $520 million, down 15 percent from a year ago. EA reported strong demand for its FIFA Soccer 11 game and Sims-branded games.

For the fiscal year, EA said it expects non-GAAP third fiscal quarter earnings of 50 to 60 cents a share on revenue of $1.375 billion to $1.5 billion. Analysts had been expecting non-GAAP third fiscal quarter net income of 70 cents on revenue of $1.44 billion, according to Thomson Reuters. For the full year, EA reiterated its guidance.

EA has hopes that its Harry Potter and Tiger Woods games will be reinvigorated with the launch of the Sony Move (which debuted in mid-September) and Microsoft Kinect (which debuts on Thursday) — two motion control systems that could bring in more non-gamers and breathe life into the industry.

Overall, EA said it had six of the top 20 selling games in Western markets with hits including FIFA Soccer 11, Madden NFL 11, NCAA Football 11, NHL 11, Battlefield Bad Company 2 and FIFA 10.

EA’s digital revenues (or online and mobile games) rose 20 percent on a non-GAAP basis to $166 million, up from $138 million a year ago. EA said it has become the top publisher on Apple’s emerging iPhone, iPad and iPod Touch devices. Top games included The Sims 3 Ambitions and Madden NFL 11 on the iPad.

EA also said its Playfish social games unit is embracing Facebook Credits as its exclusive payment option for games on the social network. That will make virtual goods transactions easier, but Facebook takes a 30 percent fee for its service. Playfish competitors including Zynga, CrowdStar and RockYou have announced similar five-year deals with Facebook on the virtual currency.

One of the positive surprises for EA this quarter was Medal of Honor, which is exceeding the company’s expectations. EA’s stock price fell 6 percent on Oct. 12 after the expensive reboot of the combat franchise got weak average review scores, including an 80 out of 100 points from me. But EA said it still sold 2 million units in the first two weeks in October.

Big upcoming releases include Dead Space 2, Crysis 2, Dragon Age 2, and Bulletstorm. But EA noted that it had canceled its NBA Elite 11 game, which was running behind schedule.


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