EA quarterly revenues off 16 percent

Battlefield 2, European Assault are quarter's sole platinum games; full-year guidance lowered to $3.3-3.4 billion; stock sinks following downgrades.

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Having already been on a roller-coaster ride for the past several weeks, Electronic Arts' stock took a major dip today. Prior to the release of the publisher's quarterly earnings report, its share price closed down $2.90--a 3.4 percent loss of value--after two of the country's biggest financial institutions downgraded its investment recommendations. Smith Barney Citigroup dropped its ratings from "Buy" to "Hold," while Bear Stearns slapped it with an "Underperform," down from "Peer Perform."

When EA finally released its earnings this afternoon, it was understandable why investors might be feeling a little less than bullish on the hot-to-trot stock. During the company's first fiscal quarter, which ended on June 30, revenues were some $365 million, off 16 percent compared to the same period in 2004. Net loss for the quarter was $58 million, compared to a profit of $24 million the prior year.

EA's losses were not unexpected...and were lower than many analysts' forecasts. The company's revised full-year guidance, though, is now below Wall Street's expectations, pegging net revenues at between $3.3 and $3.4 billion. Its guidance for the current quarter was $600 and $630 million in net revenues. EA stock sank another $2 in after-hours trading and was trading at $57.23 as of press time.

Despite the lackluster numbers, EA tried to put a positive spin on the quarter. It talked up the fact that its PC game Battlefield 2 sold a million copies in less than two weeks. However, it was only one of two EA games to hit the platinum mark, along with the multiconsole shooter Medal of Honor: European Assault. Other big sellers for the quarter were Batman Begins, FIFA Street, MVP Baseball 2005, and Need for Speed Underground 2, each of which moved more than 500,000 units.

The company also revealed several other interesting facts. First, it claims that since the PSP's launch, 26 percent of all games--more than one in four--for the handheld have been from EA. The company also revealed that its deal with John Madden was renewed for another 12 years, in effect making it a lifetime pact with the 69-year-old football commentator.

During a mostly somber conference call with analysts post-earnings-report-release, EA executives did reveal the scope of its development for next-generation consoles. Executives said the publisher has "hundreds" of Xbox 360 software development kits (SDKs) and "30 to 50" SDKs for the PlayStation 3.

That said, the company had no new information about one of its most anticipated games. When asked about the release date for The Godfather, chief financial officer Warren Jenson simply said EA had made "no announcement" other than the initial delay announcement, which revealed the game will arrive sometime during the first quarter of 2006 on current-generation consoles and later in the year for next-generation systems.

When asked why The Godfather was delayed, Jenson was candid. "The decision was pretty straightforward," he said. "It boiled down to shipping a title that we didn't think was quite ready and make guidance or invest in this franchise for the long term." EA CEO Larry Probst concurred. "We can probably ship the product in Q3, but that's not what we have in mind," he said. "We want to make sure that it's very high quality, and that's what drove the decision to move it to Q4. And we have a high level of confidence that it will be successful at that point in time."

Probst also confirmed that, as a result of the delay, The Godfather development team was undergoing a shake-up. "[We are] focusing the team and slightly reducing the number of people on the project," he said.

The two executives also revealed that another of the company's biggest cash cows may soon come unfettered from the trough. The pair revealed that EA's license to make games based on the Harry Potter films and books will expire in 2007. "We are in discussions to extend that license further," said Probst.

The CEO was also asked about his thoughts on the Entertainment Software Ratings Board, the voluntary game-ratings body currently embroiled in the scandal surrounding Grand Theft Auto: San Andreas, which is published by bitter EA rival Take-Two Interactive. "With regard to ratings, I think the system is a good one," he said "It has received praise multiple times in the past. I think the people that run that rating service do a terrific job. We're not expecting the rating system to change. I think it's well done, it's well executed, they've been consistent over the years, and it's a highly respected rating system."

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