EA Loss Grows Even as Game Sales Top Forecasts
Acquisition charges pushed video game publisherElectronic Arts to a loss for its fiscal fourth quarter, but the company's strong software sales helped the company's revenue blow past analyst expectations.
The company reported a $94 million loss for the quarter, or 34 cents per share, compared to a $25 million loss, or 8 cents per share, a year ago. Net revenue, however, was up 84 percent to $1.13 billion, with titles such as "Rock Band" and "Burnout Paradise" leading the way.
Excluding one-time charges, the company's income would have been $30 million, or 9 cents a share, compared with $19 million, or 6 cents a share a year ago.
Analysts had expected the company to break even on revenue of $834.8 million. Though sales increased at a brisk pace, the larger year-over-year loss indicate that the company has yet to truly firm up its bottom line.
"On balance, we're very pleased with our revenue growth, but not yet happy with our profit margins," said CEO John Riccitiello.
Shares of EA , which closed Tuesday at $54.57, an increase of 0.55 percent, were down more than 3 percent in extended electronic trading.
EA forecast expected a net profit of between 25 cents and 52 cents a share for fiscal 2009. Additionally, it expects revenue of between $4.9 billion and $5.15 billion.
The company also announced plans to stop providing quarterly forecasts. Moving forward, it said, it will only provide outlooks for the full fiscal year, updating those every 90 days. The decision was made because of the industry’s hit-driven trend and the slippery production schedules of game development, executives said.
"Moving away from quarterly guidance emphasizes our commitment to making long-term decisions," said CFO Eric Brown.
Big Slate of New Games on the Way
EA’s optimistic forecast reflects widespread optimism in the video game industry. Year-to-date, game software is on pace for record sales, and EA still has several major titles in the wings.
Leading that pack is "Spore," the long-in-production title from Will Wright, the creator of "The Sims" franchise. Due Sept. 7, the game will let players create unique creatures and guide their evolution from the embryonic stage to the space age. The company is also working on "The Sims 3".
EA Sports will launch "Facebreaker," its first new franchise since 2002. Expansions for the "Battlefield" and "Command & Conquer" franchise are also due soon. And the company will debut more of its fall and winter lineup at the E3 Media Summit in July. All totaled, the company has more than 15 games scheduled for release this year—and expects to make between 63 and 68 percent of its revenue in the second half of the year.
"I believe it’s the best and most exciting lineup in EA’s history," said Riccitiello.
It's EA's expansion plans that most intrigue investors, however. Earlier this year, the company finalized its $860 million takeover of BioWare/Pandemic and is in the midst of a $2 billion bid for Take Two Interactive Software.
The company behind "Grand Theft Auto" has rejected EA’s $2 billion bid as too low. The offer, which EA has so far refused to increase, is set to expire May 16, so analysts expect a resolution relatively soon. EA did not address the offer in its earnings release and deflected questions during its analyst conference call.
Beyond studio purchases, there are also unconfirmed reports from TechCrunch that EA has purchased or is about to purchase the social networking site Rupture for $30 million. If true, this will almost certainly be used to broaden the appeal of the company’s upcoming (though still untitled) massive, multiplayer online game.
The reason for EA's buying spree ties can be summed up in two words: Activision-Blizzard. EA captured 21 percent of industry software sales during the fourth quarter of last year, but the pending merger of Activision and Vivendi’s gaming division will threaten that dominance, as EA loses its position as the industry’s largest publisher.