Wednesday, May 12, 2010

Game sales strong for EA but outlook hurts shares

Video game publisher Electronic Arts Inc. said Tuesday that strong sales of games such as "Battlefield: Bad Company 2" and "Mass Effect 2" gave the company a quarterly profit above expectations. But its outlook fell short of Wall Street's forecast, and its shares slumped in after-hours trading.
Electronic Arts, which also has "The Sims" and "Madden" games, said it earned $30 million, or 9 cents per share, in the quarter that ended March 31, its fiscal fourth. In the comparable period last year it lost $42 million, or 13 cents per share.

Revenue rose 14 percent to $979 million from $860 million.

EA's adjusted earnings of 9 cents per share and revenue of $850 million handily surpassed Wall Street's expectations of a profit of 5 cents per share on revenue of $835.4 million. Adjusted results exclude special items and account for deferred revenue from games with online components.

EA indicated that many kinds of games sold well, from $60 titles for consoles to inexpensive games for Facebook and mobile devices. The quarter's star performer was warfare shooter "Battlefield," which is available for PCs, PlayStation 3 and Xbox 360, said Eric Brown, EA's chief financial officer. It has sold 5 million copies to date and exceeded the company's expectations.

It was EA's earnings forecast that gave investors pause.

For the current quarter, EA said it expects results in the range of a loss of 5 cents per share to a profit of 5 cents per share. On an adjusted basis, it is forecasting a loss of 35 cents to 40 cents per share on revenue of $460 million to $500 million.
Wall Street had been forecasting a loss of 33 cents per share and revenue of $516.8 million.

Shares of EA, which is based in Redwood City, Calif., fell 79 cents, or 4.2 percent, to $18.01 in after-hours trading. Before the earnings release the shares gained 3.1 percent to close at $18.80.

"Expectations perhaps got a little bit ahead of themselves," said Arvind Bhatia, an analyst with Sterne Agee. "The quarter itself was quite satisfactory. But some people would have liked to see a raise in guidance."

Along with other video game makers, EA has been increasing its focus on the online component of games, which include downloadable content to enhance games bought in packages. This "digital" category also includes games for social networks such as Facebook and mobile platforms like the iPhone.

On Monday, the company announced it will begin charging people $10 to play its sports games with others online if they rented or bought the games used. It includes the service at no extra charge for players who buy the games new.

Charging for online services is not new — it's how EA rival Activision Blizzard Inc. brings in a steady source of revenue from "World of Warcraft." But EA's new policy is a further sign the company is preparing for a future where games are offered online as a service, not just in a shrink-wrapped disc.

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