EA's quarterly profit drops, but beats targets

The video game publisher posts a 38 percent drop in quarterly profit but beat Wall Street targets.

3 min read
Electronic Arts, the world's biggest video game publisher, on Thursday posted a 38 percent drop in quarterly profit but beat Wall Street targets, overcoming fears that holiday shortages of new video game consoles had dampened software sales.

Shares rose 3 percent after the Redwood City, Calif.-based publisher known for its blockbuster franchises like Madden NFL, Need for Speed and The Sims posted fiscal third-quarter net income of $160 million, or 50 cents per share, compared with $259 million, or 83 cents per share, in the year-earlier quarter ended December 31.

Results from the most recent quarter included an after-tax stock-based compensation charge of $28 million, or 9 cents per share. Excluding items, EA's profit was 63 cents per share. Revenue rose nearly 1 percent to $1.28 billion from $1.27 billion in the important holiday shopping quarter.

"The sentiment was that they were going to miss badly," Wedbush Morgan analyst Michael Pachter said as shares climbed to $52.11 in after-hours trade from their Nasdaq close of $50.54.

But the results came in ahead of analysts' average estimates, which called for earnings before items of 57 cents per share on revenue of $1.26 billion, according to Reuters Estimates.

Long-awaited video game consoles from Nintendo and Sony hit stores in November, marking the full start of an expected new cycle of growth for the $30 billion global video game industry.

"People were pretty skeptical about (EA's) ability to deliver in the December quarter with some of the negativity around the (Sony PlayStation 3) sell-through and Microsoft cutting the Xbox 360 forecast last week. So they did pretty good," American Technology Research analyst Paul-Jon McNealy said.

While supplies of the Nintendo Wii and Sony PS3 remain limited, sales of popular handheld players and Sony's market-leading PlayStation 2 console have helped to offset the shock of the transition to new console technology.

Microsoft released its Xbox 360 in November 2005 and recently said it plans to ship a total of 12 million of the consoles by its fiscal year end on June 30, down from a previous target of 13 million to 15 million.

For the March quarter, EA forecast revenue of between $550 million and $600 million and adjusted earnings of nil to 3 cents per share. For the fiscal fourth quarter ending March, analysts had been expecting earnings of 2 cents per share, excluding items, on revenue of $643.4 million.

"Typically, whoever has big games in December has big follow-through in the March quarter. EA was solid but not spectacular on that front," McNealy said.

Shares of EA are down almost 8 percent from a year ago, compared with a 20 percent rise in shares of rival Activision, whose annual revenue is about half that of EA.

EA has made significant investments in titles for next-generation consoles like the Xbox 360 and PS3, online gaming in Asia and expanding its portfolio of company-owned games.

While the company will continue to invest in key areas such as online gaming in Asia, EA Chief Financial Officer Warren Jenson told Reuters that "We are clearly now entering a phase of growth and reward."

Jenson said the company's market share was down slightly during the December quarter, when it was the No. 1 publisher of games for the Xbox 360, PS2 and PS3.

"In the year ahead, we plan to build on our leadership position on both the Xbox 360 and the PlayStation 3, and to significantly increase our support for the Nintendo platforms," EA Chief Executive Larry Probst said in a statement.