It's been a rough year for Electronic Arts. Last Halloween, the Redwood City, California-based publisher had a share price of $61.12 and was riding high on the acquisition of superdeveloper BioWare/Pandemic. Today, the company's stock ended at $27.73, after a steady decline accelerated by the past month's economic bloodbath on Wall Street.
Unfortunately for many EA employees, 2008 is about to get a whole lot rougher. Today, Electronic Arts announced that it is laying off six percent of its global workforce as part of a company-wide cost-reduction plan. With a payroll of about 9,000 worldwide, the layoffs will affect approximately 540 people. In a conference call this afternoon, executives said the layoffs will come from EA's publishing and corporate divisions, as well as from its various studios and labels.
Today's battery of pink slips may not be the last. Executives also said that EA "will manage head-count decisions aggressively going forward." The company plans to reduce hiring in high-cost territories, and will expand operations in "lower-cost locations."
By EA's own estimates, the layoffs announced today will save it more than $50 million annually--money the company sorely needs. Today, EA announced a greater-than-expected $310 million loss, or 97 cents per share, during the July-September quarter. During the same period last year, the company lost $195 million, or 62 cents a share.
The loss is doubly harsh because it comes in the face of a 40 percent surge in quarterly revenue for EA. For the quarter, the second in the company's fiscal year, earnings totaled $894 million, up $254 million from the same quarter in the prior year. Best-sellers for the period include Madden NFL 09, with 4.5 million copies sold worldwide, and Spore, with 2 million units sold worldwide. Another high point was the launch of Warhammer Online: Age of Reckoning, which now boasts 800,000 players on 1.2 million units sold. NCAA Football 09 sold 1.8 million copies, and Tiger Woods PGA Tour 09 sold 1.9 million--the same number as Mercenaries 2: World in Flames. Combined, Rock Band and Rock Band 2 moved 1.5 million units during the quarter.
In a statement, EA CEO John Riccitiello put a brave face on things. "Considering the slow down at retail we've seen in October, we are cautious in the short term," he said. "Longer term, we are very bullish on the game sector overall and on EA in particular. The industry is growing double-digits on the strength of three new game consoles and increases in the number of homes with broadband Internet connections. EA is well-positioned to benefit from these technology drivers due to the strength of our creative studios and our broad collection of game properties."
Unfortunately, the markets were not as upbeat as Riccitiello. As of press time, EA stock was down nearly 14 percent in after-hours trading.
[UPDATE] In the conference call, Riccitiello and other executives laid out the reasons for the major shortfall. One major factor was the postponement of Harry Potter and the Half-Blood Prince, which was slated for a late summer release to lead up to its film tie-in's November debut. When that film was suddenly delayed until summer 2009, EA was forced to sit on a nearly finished game it had already spent million marketing. As a result, EA had to move $120 million of revenue into its next fiscal year. Of that, roughly $48 million was expected in the July-September quarter, when the game was slated for release.
[UPDATE 2] Besides international exchange rate issues, which cost EA 12 cents a share, the other big reason for the shortfall is EA's lavish investment in future ventures. The company spent over $100 million in expanded development costs, and invested a further $150 million in building a direct-to-consumer download business. The company also spent $35 million in upfront expenses for its EA Partners deals. Those include the recent publishing agreements with Epic Games, id Software, and Grasshopper Manufacture, as well as the just-announced agreement to distribute MTV and Harmonix's rhythm game based on the music of The Beatles.