GamesBeat

Bouyed by sports games, EA beat analysts’ estimates for second fiscal quarter

Sports games saved the day. EA reported fiscal-second-quarter earnings today, beating analysts estimates for the period ending Sept. 30.

The bellwether video game publisher said it had $1.08 billion in revenue for the quarter, compared with $1.03 billion a year ago. Non-GAAP net income was $49 million, or 15 cents a share, compared with $17 million, or 5 cents a share, a year ago.

Analysts had expected non-GAAP earnings of 10 cents a share and revenues of $1.08 billion. They also expected EA to target revenues for the third fiscal quarter (ending Dec. 31) of $1.05 billion to $1.1 billion and 7 cents to 12 cents in earnings per share.

“EA is performing well, once again beating street consensus in fiscal Q2,” said chief executive officer John Riccitiello. “We delivered yet another quarter of sharp digital growth, with digital revenue up 40 percent compared to the same period last year, reflecting our strength across multiple brands and channels.”

Game sales at retail stores have been weak all year, but a larger and larger part of EA’s revenues come via digital distribution. Digital sales were $1.4 billion in the trailing 12 months. For the second fiscal quarter, digital revenues were $314 million. About $43 million in Battlefield 3 Premium subscription revenue was deferred until the fourth fiscal quarter.

One of things that investors always watch closely is the number of subscribers to EA’s marquee massively multiplayer online game, Star Wars: The Old Republic. But EA hasn’t broken anything out yet in its initial press release.

After the call, analyst Colin Sebastian of R.W. Baird said, “Solid quarter on the back of EA Sports titles, but the December quarter looks weak, and the company lowered the full year financial guidance. I don’t think this is a big surprise, but clearly the company still has its hands full, and it is still a difficult selling environment.”

Analyst Michael Pachter of Wedbush Securities said, “No real surprise. They beat in Q2 on the strength of sports games, guided pretty light for Q3 on Medal of Honor being a horrible game, and are guiding well above consensus for Q4 on Battlefield Premium — $110 million in deferred revenue, almost 100 percent margin — which contributes $0.24/share.”

Arvind Bhatia, an analyst at Sterne Agee, anticipated before the earnings came out that FIFA 13 and Madden NFL 13 outperformed expectations. But in the upcoming fourth quarter, he is worried about “weak trends” for Medal of Honor: Warfighter and further market share loss as EA appears to lack big titles to drive holiday sales.

Last week, Riccitiello took note of how social games faltered because “consumers won’t pay for crap.” He predicted that high-quality games will come to dominate gaming on mobile and social platforms.

On a non-GAAP basis, EA reported in its previous fiscal first quarter ended June 30 that it had revenues of $491 million, down from $524 million a year earlier, and a net loss of 41 cents a share, compared with a net loss of 37 cents a share a year earlier.

“We delivered a very strong performance in the second quarter, backed by great performances from our EA Sports titles,” said chief financial officer Blake Jorgensen in a statement today. “We are forecasting annual non-GAAP EPS growth of at least 25 percent at the midpoint of our guidance, and Operating Cash Flow of over $400 million.”

FIFA 13 sold 7.3 million units to end users, not including mobile downloads, in its first four weeks. FIFA generated digital net revenue of $115 million in the first half of the fiscal year. Battlefield 3 Premium now has more than 2 million subscribers.

EA’s stock has been frozen since Hurricane Sandy prevented stock markets from opening Monday and today. For the third-fiscal quarter, EA expects to report non-GAAP net income will be $350 million higher than GAAP revene because of the impact of a change in deferred net revenue. That also includes $5 million in expected restructuring $5 million.

Non-GAAP revenue is expected to be $1.25 billion to $1.35 billion for the third fiscal quarter, with non-GAAP net earnings per share expected to be 50 cents to 60 cents. For the full fiscal year ending March 31, EA expects non-GAAP revenue of $4.05 billion to $4.2 billion. Non-GAAP earnings per share is expected to be $1 a share to $1.15 a share for the full year.

On the digital front, EA reported mobile game revenues of $88 million, up from $55 million a year ago, on a non-GAAP basis. EA now has 250 million core registered online users, up from 140 million a year ago. EA’s social gaming user count sank to 42 million monthly active users from 101 million a year ago.

EA’s smartphone and tablet revenue was $66 million, up 128 percent from a year ago. Feature phone was $144 million, up 45 percent from a year ago. Console digital revenue was $81 million, up 31 percent. PC digital revenue was $23 million, up 12 percent. EA expects digital revenue will hit $1.6 billion to $1.65 billion for the full fiscal year.


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