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Electronic Arts reported today that its sales and earnings beat analysts’ estimates for the third fiscal quarter ended Dec. 31, but the company offered surprisingly pessimistic guidance for the fourth fiscal quarter ending March 31.
Redwood City, Calif.-based EA is one of the biggest independent video game publishers, with business that range from hardcore shooter games like Battlefield 3 to casual titles like The Sims Social on Facebook. Its results are a bellwether for the video game business. EA is balancing digital and retail sales of games and is shifting more and more of its business to digital distribution.
EA reported non-GAAP revenues of $1.65 billion and earnings of 99 cents a share. Analysts were expecting non-GAAP revenues of $1.62 billion and earnings of 93 cents a share, compared with revenue of $1.4 billion and net income of 59 cents a share a year earlier. EA’s own guidance was for $1.55 billion to $1.65 billion in revenues and 85 cents to 95 cents a share in net income. In after-hours trading, EA’s stock has fallen 14 cents to $18.44 a share.
But EA said that adjusted earnings for the fourth fiscal quarter will be 10 cents to 20 cents a share, compared to expectations of 29 cents. EA said sales will be $925 million to $975 million on a non-GAAP basis for the fourth fiscal quarter, compared with estimates of $983 million.
EA chief executive John Riccitiello will talk about the results in detail at 2 pm Pacific time.
“We are pleased to report a strong holiday quarter driven by Battlefield 3, FIFA12 and a strong showing by our digital games and services,” said Riccitiello in a statement. “Star Wars: The Old Republic is developing a committed community of players with more than 1.7 million active subscribers and growing.”
EA has a diverse portfolio of games, but the big title that everyone is watching closely is Star Wars: The Old Republic, which launched Dec. 20 after six years of development and an estimated $200 million in expenses. EA is selling the game for $60 and asking for subscriptions of $13 to $15 a month. The key is whether the gamers who tried it out on a free basis will stick with it and pay for the game. Star Wars sold through 2 million units in just a month.
The Old Republic, which has been in the making for more than five years, was a major reason why the publisher purchased development studio BioWare (and the now defunct Pandemic) for $860 million in 2007. The success or failure of the game will speak volumes about the tenure of Riccitiello. The Old Republic could get a boost since a 3D version of the film Star Wars: Episode I — The Phantom Menace will debut at the box office on Feb. 10.
Previously, Riccitiello stated that the game would be on a path to profits with half a million subscribers, a modest number in light of World of Warcraft’s 10.3 million players. He said that the game needed 1 million subscribers to be nicely profitable. If Electronic Arts gets 1.5 million to 2 million subscribers, it will be enough to “make it look like a great investment and justify the purchase of BioWare Pandemic,” Riccitiello said. The high-end numbers may seem overly ambitious, but in the past year, World of Warcraft has lost around 1.7 million paying subscribers, leaving plenty of former Warcraft fans ripe for the picking. With 1.7 million users already, EA is at the high end of the hopes for the game.
Battlefield 3 and FIFA 12 both sold through more than 10 million units, while Madden NFL 12 has sold through almost 5 million units to date. EA said it was the No. 1 publisher in market share for North America and Europe. Its share in 2011 of Europe grew 3 percentage points to 20 percent, while it grew 1 percentage point to 17 percent share in North America.
PopCap, acquired for $750 million-plus in August, has grown revenue by 30 percent of the past 12 months. EA said it was the No.1 game publisher in the Apple App Store in December, with the free-to-play mobile game The Sims: FreePlay hitting NO. 1. EA’s Nucleus registration system now has a database of more than 168 million players. And EA’s Origin digital distribution service has more than 9.3 million consumers and generated $100 million in non-GAAP revenue since its launch. EA Origin now has publishing deals with 11 new companies, including Warner Bros., THQ, CapCom, Trion Worlds and Robot Entertainment.
In the fourth fiscal quarter, EA has some big titles coming. This wek, EA is launching Kingdoms of Amalur: Reckoning, the title developed by Curt Schilling’s 38 Studios. EA will also launch Mass Effect 3, a big sci-fi title on March 6.
“We recorded our highest operating cash flow in 31 quarters and grew segment share in both Europe and North America,” said Eric Brown, chief financial officer. “Third quarter non-GAAP digital revenue grew 79 percent year-over year, and we achieved our goal of generating over $1 billion in non-GAAP digital revenue on a trailing-twelve-month basis.”
For the past 12 months, EA said non-GAAP revenue was $4.2 billion, up from $3.7 billion a year earlier. Non-GAAP net income for the year was $311 million, or 92 cents a share, compared with $173 million, or 52 cents a share a year earlier.
GAAP revenues were $1.06 billion, up from $1.05 billion a year ago for the quarter. GAAP net loss was $205 million, compared with a net loss of $322 million a year ago. EA closed the quarter with $1.2 billion in cash and 7,742 employees, down 17 percent from a year ago.