EA sees revs, profit decline

[UPDATE] Company reports Q2 revenues of $675 million, profit of $51 million; tally is higher than most analysts expected.

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After the market closed today, Electronic Arts reported its second-quarter earnings. And while the company reported sharp drops to both revenue and profit, the numbers were well within expectations. In fact, analysts had expected the publisher to fare worse that it did.

Second-quarter revenues of $675 million were 6 percent below the $716 million the company tallied in the previous year.

Reuters reported today that consensus among analysts was that the company would report revenues of just $634.6 million.

Net income for the July-September quarter declined to $51 million, or 16 cents a share. That figure compares to $97 million in profit the company reported in the same quarter a year ago.

Reiterating its readiness for the upcoming release of the Xbox 360, chairman and CEO Larry Probst said EA is "well prepared for the launch." He added: "We plan to release five blockbuster games--FIFA 06: Road to FIFA World Cup, Madden NFL 06, NBA Live 06, Need for Speed Most Wanted, and Tiger Woods PGA Tour 06 on this exciting new platform." That lineup was expected.

In the earnings call that followed the close of the markets today, company CFO Warren Jenson came out swinging, stating that "our second-quarter results were solid, netting the ins and outs of title moves...we extended the top end of our guidance and came ahead on the bottom line."

Then in rapid fire, he presented the highlights, giving his attention first to an area EA makes of habit of winning in: sports.

"Sports is off to a great start," Jenson said. "Our North American segment share [is a record] 75 percent, up 7 points from this time last year."

He said Madden NFL 06 took only three weeks to become the number one console title for year in North America. "Through the end of the quarter, we sold an excess of 4 million copies." Madden wasn't the only performer. NCAA Football 2006 sold over a million and a half copies, Jenson said. "And we estimate sell through is up over 15 percent." In addition, he said sales of FIFA 06 was tracking more than 30 percent ahead of last year. "FIFA was at the top the charts in Europe for three consecutive weeks," Jenson said. "The competition is heating up, but we are very pleased with our performance and like our prospects."

Probst, on the other hand, seemed to hedge in the area of whether or not the previously mentioned Xbox launch titles would in fact be on shelves November 22, when the 360 was due to first go on sale.

Responding to a question on EA's commitment to the new console, the company exec said, "We intend to be prolific in terms of the number of titles that we will publish for that platform. I think we mentioned we will have five during the launch window."

Given that most industry watchers consider the 360 launch window to last for the first 14 weeks after the console's appearance, Probst seemed to be prepping analysts for a release of those titles anytime before March 1, 2006.

When pressed for clarification, an EA spokesperson said the titles will "all be there at launch," adding that "in the case of any last-minute delays, we may be there a few days after launch, but no more than a week or two." EA considers the console's "launch window" to be no more than two weeks after the launch.

However, an air of hesitancy permeated the call. On a number of occasions, chief financial officer Warren Jenson cautioned listeners to consider at least the possibility of delays to games. "A final word of caution," Jenson volunteered at the top of the call. "Expect the unexpected," he said. "We are in transition. We could experience production or development snags or abrupt changes in pricing and demand."

Later in the call, he addressed the possibility of delays again, saying that while "there is no company in a better position to take advantage of this opportunity than Electronic Arts...there is plenty of risk and we certainly can and will make mistakes." The same EA spokesperson stressed Jenson's comments related to "bigger picture" issues about transitioning to next-gen development.

Other significant milestones mentioned in the call included the fact that Asia revenue was up 24 percent year-over-year, a POGO subscriber milestone of 1 million registered users, up 75 percent from a year ago, and the mention of six titles that sold over a million units during the quarter: Madden NFL 06, NCAA Football 06, Burnout Revenge, FIFA 06, NBA Live 06, and The Sims 2: Nightlife. That number bests last year's second quarter tally that saw only four titles sell a million units. Unfortunately for EA, its gains were offset by a five percent decline in console-game revenue and increased costs associated with bulking up development teams to work on next-gen games.

On the Nasdaq, Electronic Arts shares were down $1.09, closing at $55.79. In after-hours trading, shares bounced back, gaining $1.12 off the close.

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