Electronic Arts boasts strong quarterly financials, reveals new console MoH

Revenue and profit are both up as four titles sell over a million; however, company expects no bump from this holiday sales, pins FY05 hopes on Medal of Honor 4.

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Electronic Arts turned in another solid quarter for the quarter ending September 30, 2004, during which it released a total of 33 SKUs.

Revenue was up 35 percent compared to the same quarter a year ago and profit also climbed. Revenue for the July-September quarter was $716 million, compared to $530 million a year earlier. Profit for the quarter was $97 million, a year-on-year increase of 27 percent. EA's Board of Directors also approved a share repurchase program of up to $750 million worth of publicly held shares.

EA touted strong sales during the quarter of Madden NFL 2005, The Sims 2, Burnout 3: Takedown, and NCAA Football 2005. Each title sold over 1 million units during the quarter.

In a statement, EA's CEO Larry Probst said, "We enter the holidays with strong momentum in North America, Europe, and Asia. EA Sports is having its best year ever and The Sims 2 had the strongest PC launch in EA's history." Looking ahead to the current quarter, he added, "In the December quarter, the breadth and quality of our global line-up is exceptional, with 11 new releases expected to achieve platinum status."

In spite of the optimistic tone, however, Probst isn't promising much in the way of growth for EA investors. For the important fourth calendar quarter, EA says revenues will be flat, compared to last year's holiday quarter. Investors, it says, can expect net revenue to be between $1.4 and $1.475 billion. That compares to $1.475 billion for the same quarter a year ago.

Wedbush Morgan analyst Michael Pachter commented on EA's guidance for the current October-December quarter. "I think that [EA] management decided that they would set the bar lower to grow earnings next year," Pachter said, "It's clear that they face a ton of competition this holiday, and they've shifted some titles into the March quarter in order to avoid competition."

He added: "I think that once they decided that the December quarter would be challenging, they decided to 'throw in the towel' and manage their affairs conservatively this fiscal year so as to position themselves to grow next year."

As it has in previous earnings calls, Electronic Arts hammered home the increased importance of markets outside North America on the company's bottom line. In the case of The Sims 2--which has sold 3 million units to date, according to EA, qualifying it as the strongest launch ever for the company--CFO Warren Jenson said in today's call that 70 percent of total Sims 2 sales has come from international markets. The chart below puts EA's newfound overseas strength into perspective.

Q2Q3Q4Q1Q2YOY%
FY04FY04FY04FY05FY05Growth
GEOGRAPHIC REVENUE MIX
(in millions)
North America Revenue35875329921147332%
Revenue outside North America17272229922124341%
(by region)
Europe Revenue14565824919021045%
Asia Pacific Revenue184322182121%
Japan Revenue92128131229%
------------------------------
Net Revenue5301,47559843271635%

In a conference call that followed the close of markets today, EA executives Probst and Jenson repeatedly found themselves having to defend the company against suggested inroads made by sales of the lower-priced ESPN NFL 2K5. They did acknowledge a fight had been waged by others against their prized franchise, Madden Football. "There are a lot of pressures we are going to have to work through," Jenson said when asked about "the Take-Two issue."

Probst then interjected: "We will very aggressively defend our sports franchises and we are developing a plan as we speak." The two said that by their measure, a third of all Madden 2005 consumers had also purchased the Take-Two-published football title.

Electronic Arts executives also revealed that they are working on a new console Medal of Honor game. Temporarily titled Medal of Honor 4, it will likely arrive before the end of EA's fiscal year (March 2005). The executives were fairly confident the game would boost the company's annual bottom line, but would reveal little else about the game. The last console Medal of Honor game, Medal of Honor Rising Sun, was a best-seller despite receiving middling reviews.

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