Shares of Electronic Arts rose sharply Friday after adjusted fourth-quarter earnings exceeded Wall Street's expectations. But financial analysts wondered whether the world's biggest video game publisher was becoming overvalued.
The company said Thursday net income for the three months ended Dec. 31 dropped 38% to $160 million, or 50 cents per share, compared with $259 million, or 83 cents per share, during the same period last year.
Executives blamed much of the decline on a $28 million charge resulting from a major accounting change in stock-based compensation. Not including that charge and other one-time expenses, EA earned $201 million, or 63 cents per share.
Revenue for the quarter that ended Dec. 31 rose less than 1% to $1.28 billion from $1.27 billion a year earlier.
Excluding special charges, analysts surveyed by Thomson Financial expected Redwood City-based EA to earn $184 million, or 57 cents per share, on sales of $1.27 billion.
EA has been a solid investment with long-term investors, and the stock has increased nearly 70% since 2002. The company has a lock on sports titles--one of the biggest, most reliable and most lucrative segments of the gaming industry.
Most Popular Titles
EA's most popular titles in the last quarter were "Need for Speed Carbon," "FIFA 07," "The Sims 2 Pets" and "Madden NFL 07," with each game selling more than 3 million copies.
But critics wonder whether EA has been too long resting on the laurels of established hits. They worry that innovative startups--which distribute games inexpensively on the Internet-- could generate more buzz and eventually dethrone the reigning video game leader.
"EA just mass-markets these sports titles every year, but they've been sucking on that pig for a long time and it's kind of painful to watch," said technology analyst David Gardner, co-founder and co-chairman of Alexandria, Va.-based Motley Fool. "I've been a happy investor for the last five years, but I don't know how long that will last. The company needs more innovation."