EA's holiday revs flatline, stock rises

[UPDATE] Megapublisher's net revenue rises 1 percent, net income slips 38 percent during the last quarter of 2006--but its stock spikes over $3 in after-hours trading.

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Industry analyst Michael Pachter reacts to EA's numbers immediately after the earnings call. Curt Feldman speaks with the Wedbush Morgan analyst by phone.

Today Electronic Arts reported its earnings for the third quarter of its fiscal year, which ended on December 31, 2006. During the three months, the company saw a modest year-on-year increase in quarterly net revenue, going from $1.27 billion to $1.28 billion.

The Redwood City-based publisher's net income, however, fell precipitously, going from $259 million in October-December 2005 to just $160 million during the same period in 2006. [UPDATE] However, the numbers were better or in line with most analysts' expectations, and EA stock rose sharply in after-hours trading. After closing on the Nasdaq at $50.54, the company's share price had shot up over $3 as of press time.

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EA CFO Warren Jenson opens today's earnings call with a quick summary of the financial highlights.

One likely factor contributing to EA's decline income was the short supply and poor tie-in ratio of the PlayStation 3, which NPD estimated sold just over 600,000 units in the US during 2006. EA released four PS3 games during the quarter and now claims it has a 32 percent share of the PS3 market in North America. Nonetheless, EA sold $41 million worth of PS3 games $29 million of Wii games during the quarter. Chairman and CEO Larry Probst said his company "was pleased with the performance of our products on next-generation consoles."

Wedbush Morgan Securities analyst Michael Pachter said the constrained supply of PS3s was certainly a factor EA didn't make more money. However, he predicts the setback is only temporary. "It's not like there will never be PS3 games again," he told GameSpot. "My belief is that people will ultimately buy games, and EA will get its fair share of those sales."

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Jenson lays out upcoming strategy for the Madden publisher.

Pachter also said the main culprit for EA's less-than-stellar quarter was the rising cost of developing games for the newest batch of consoles. "Earnings are lower because their R&D spending went from $206 million to $330 million," he told GameSpot. "That's over $0.25 a share all by itself." EA spent $23 million in October completing its takeover of Battlefield developer Digital Illusions CE (DICE) and founded a Wii-centric studio in November.

In a statement, EA CFO Warren Jenson alluded to the cost of his company's expansion of in-house development. "The past several years have been about investment," he said. "The coming years are about growth and reward." Jenson also played up the fact that EA's revenue from digital content hit a record $115 million during 2006, a number Pachter found "impressive." During the quarter, the company made $37 million from digital content, which includes items sold on Xbox Live Marketplace and casual games sold on Pogo.com.

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CEO Larry Probst and Jenson respond to analyst questions, commenting on the Wii, overall market share for EA, and what's behind delays to LOTR.

Game-wise, the quarter's biggest sellers were the latest entries in EA's storied franchises. More than 10 million games from the Sims franchise were sold during the three months, with The Sims 2 Pets selling 5 million by itself. More than 8 million copies of Need for Speed Carbon were sold during the quarter, and more than 6 million copies of FIFA 07 were sold worldwide. Madden NFL 07 also topped 3 million units and ended the year with more than 8 million copies sold in North America alone--making it the most popular game on the continent in 2006, according to EA.

75 Comments

  • gws898

    Posted Feb 3, 2007 3:55 pm PT

    Don't know what's wrong with EA this days???

  • BeyondItAll

    Posted Feb 3, 2007 3:42 pm PT

    I find funny how everyone always bashes the crap out of EA, but the second they see an upcoming game from them that looks like it might be ok they go goo goo gaa gaa.

    How many times must a fish get hooked before it learns?

    You guys need to just flat out stop buying EA Games! If they release a game you MUST have well you don't have to buy it to get it

    Just say NO to EA!

  • McnabbsPHIeagle

    Posted Feb 3, 2007 12:28 pm PT

    You Realize their stock ROSE don't you. This article is what ti is. The Majority of Madden Players Play Madden on Sony Brand Consoles. Their weren't many PS3's released in america, half fo them were bought buy non-madden fans and Ebay seekers.

    Check back with EA After PS3's are distributed evenly throughout the U.S.

    Madden On The PS2 Has PWNED Every other game in Sales for the last few years. GOW, Nintendogs, whatever game you like just can't sell every month like Madden Does.

    Next Year Madden on the PS3 will be ontop of PS2 doen't get there first. EA and Sony built Each Other's Empire. And an Empire doesn't crumble as quicklly as you people have made it seem.

    You just hate Football beating Final Fantasy and other Titles, thats all. Live with it.

  • Talus057

    Posted Feb 3, 2007 8:33 am PT

    I dont like this article at all. Well that is to say I dont like EA. That doesnt mean I dont like the person that wrote it. Just look at every respons they have and it all drips with arrogance and ignorance. The facts are clear to everyone. EA has the worst reputation of any and all other dev-pubs for the last decade, depending on who you ask, and there simply is no recovery from that. I think in the Capitalist dev-pub's mind's they think some fresh batch of gamers will magically appear and keep giving them money for argueably the worst titles on the market. That is too utopian to believe. The people you see giving bad reviews here in the comments are the same people EA stabbed in the back for doing something stupid in some game they used to love that they now feel confident enough to respond of likeness in regard to the arrogant article above. You dev-pubs continuously underestimate your true competitor and opponent: Your Customers. Do not fear the company that is willing to do everything you are not. Fear the person who is willing to buy the product from the company who will do everything you will not because that person will speak, as I am, and as these other people are, and be heard by others who will form opinions based on what we say. The "Fall of EA" is already set in motion and already sealed into stone--It is guarenteed. When you bought out all those quality companies--We did not forget. When you released that extra expansion pack that shouldve been an update--We did not forget. When you released a game that wasnt finished--We did not forget. When you ripped us off and stole our money--We did not forget. Do you see a cycle here and do you see where you will end up when it is all said and done? You will be left here being political with the reviewers on websites like GameSpot who hate you as much as we do and will probably only review your games and/or intentions while the endorsements remain fresh and constant. EA--Your existance brings dishonor to this entire gaming community. Bow out in shame and never return.

  • BeyondItAll

    Posted Feb 2, 2007 10:35 pm PT

    EA Games, ruin everything!

  • blowmestudios

    Posted Feb 2, 2007 4:11 pm PT

    stop making so many crappy sims and amkea few good ones! jeez im a big fan of that series but havent bought one in a while because the ones for PSP blow

  • vampiredust99

    Posted Feb 2, 2007 4:10 pm PT

    give me Midway stock anytime

  • dgpilot00

    Posted Feb 2, 2007 1:21 pm PT

    Rising development costs + next-gen development complexity + current crap quality = even lower quality = fall of EA. This would be a dream come true.

  • Auricom_Pilot

    Posted Feb 2, 2007 1:09 pm PT

    ps3 development must be quite expensive at the moment.

  • anarchicgoth

    Posted Feb 2, 2007 1:05 pm PT

    its because they make crappy games! They need to really kick it up a notch! Come on EA!

  • Riverwolf007

    Posted Feb 2, 2007 12:24 pm PT

    EA is so lame that when NFL 2k5 crushed Madden in sales and quality instead of making a better game they bought the sole rights to the NFL.

  • mismajor99

    Posted Feb 2, 2007 10:38 am PT

    I wish EA would just release DICE from their clutches. What a great developer, and to get sucked up into this mega-corporation is a shame.

  • TintedChimes

    Posted Feb 2, 2007 8:57 am PT

    sims...i think that's what's fueling them

  • fauljosh

    Posted Feb 1, 2007 8:00 pm PT

    Hmmmm so EA's revenues are mirroring their development habbits. They're both flat.

  • sarges24

    Posted Feb 1, 2007 7:28 pm PT

    Lol, this is funny.... seems the only time gamers unite and don't bash consoles is when it comes to EA. Everyone unites to bash EA and their mediocre, and stale software....

  • wenbin09

    Posted Feb 1, 2007 7:13 pm PT

    i hope they get better games out... I have lots of pro wth my fifa 07!!

  • jtvbetta

    Posted Feb 1, 2007 7:03 pm PT

    I'm interested to see the total average rating of all their published games combined, (hmmmmmm.......) They should value quality more than quantity of sales.

  • darknferno12

    Posted Feb 1, 2007 5:46 pm PT

    Can we expect a carbon copy of this next year maybe in a new font?
    (yes it's a bad joke sue me or buy me out i can't stop!)

  • panteral3

    Posted Feb 1, 2007 5:24 pm PT

    Yesss! Down with the EVIL EMPIRE!!!!!

    Wait, this article is NOT about SONY?

  • Pete5506

    Posted Feb 1, 2007 5:23 pm PT

    poor ea, has so many good games but still cant do so hot

  • Ibitmyeyeoff

    Posted Feb 1, 2007 5:20 pm PT

    Have you all heard about the 2K series trying to make a comeback in the football and basketball dynasty? May not happen, but if it does, they're gunna have one heck of a line-up to beat out EA.

  • Unkillable

    Posted Feb 1, 2007 5:19 pm PT

    It looks like EA is going down, I never really liked it anyway... The only thing worse than EA is Activision and Atari. On the other hand there is a slight chance that EA might pull through if they can right their wrongs.

  • palaric8

    Posted Feb 1, 2007 5:16 pm PT

    EA: I don't buy fifa since the 04 editions! you know why becuase it was the same as 03!!!!!!!..in fact I don't buy any EA SPORTS title anymore

  • crippla87

    Posted Feb 1, 2007 5:13 pm PT

    They are pleased with the way their next gen games are going? WOW, their sports lineup is a joke right now. Madden is the most popular game because its the only thing NFL fans can get.

  • Re_ensurer

    Posted Feb 1, 2007 5:08 pm PT

    I'm not a fan huge of Madden or The Sims.

  • TryMe01

    Posted Feb 1, 2007 5:07 pm PT

    they make a rise of one percent seem small, but just look at how much they made. now thats nothing to squint at

  • FrankieLA

    Posted Feb 1, 2007 5:05 pm PT

    8 million copies of Need for Speed 2?!

  • Areola54

    Posted Feb 1, 2007 4:58 pm PT

    Little good news. Hope the EA scum go out of business.

    they still made a profit so it's not good.

  • ticalmc2k2

    Posted Feb 1, 2007 4:54 pm PT

    Hutch_Eagles03
    Funny how in a story about EA's finacial sump, gamespot still managed to take a shot at the PS3. If the PS3 sold 6 million; EA still would have sucked.

    Yeah I noticed that too, Im surprised I havent heard more people comment on that. But EA needs to go back to making great games, not just acceptable ones. Especially with their EA Sports division.

  • Agreb91

    Posted Feb 1, 2007 4:52 pm PT

    If EA didn't have the Sims they would be in trouble.

  • wakko19991

    Posted Feb 1, 2007 4:36 pm PT

    I can't understand how the sims stays in the top always. I'd think by now everyone on the planet has this game, but is just keeps selling and selling and selling....

  • DontEatCream

    Posted Feb 1, 2007 4:22 pm PT

    Who were the 5 million people who purchased Sims 2: Pets? Honestly, who?

  • umbracascade

    Posted Feb 1, 2007 4:18 pm PT

    Stop making crap games, stop putting ingame advertising everywhere and for the love of god stop defiling the corpse of originality which you have already long killed.

  • thekey

    Posted Feb 1, 2007 4:12 pm PT

    zeecorner "I wish people would stop buying so many of their games so they would make something above the mediocre level..."

    Tell me about it. They have no pressure at all. They just dump crap and people eat it.

  • zeecorner

    Posted Feb 1, 2007 4:06 pm PT

    I wish people would stop buying so many of their games so they would make something above the mediocre level...

  • mjwickstrom1

    Posted Feb 1, 2007 4:04 pm PT

    Need for Speed is a great game, so I'm not surprised that it's a top seller!

  • sarges24

    Posted Feb 1, 2007 4:04 pm PT

    Pleased with the performance on next gen consoles? Wow, that's pretty sad considering Madden is everything but Good, especially on next gen consoles...

  • bghattas

    Posted Feb 1, 2007 3:55 pm PT

    If Army Of Two is critically acclaimed and sells big numbers, EA needs to see that as a sign. Rehashing their tired franchises (except Burnout) won't cut it in the next few years.

  • Super_Spidey2

    Posted Feb 1, 2007 3:54 pm PT

    EA deserves a kick in the pants after what they did to Batman... and Superman... and those Marvel heroes...

  • ivory_soul

    Posted Feb 1, 2007 3:51 pm PT

    "EA is an excellent company, however, their wimpy earnings is definitely noticable in their lack of games. I agree with AofMlover, they definitely need to update the Need for Speed franchise, but I know they're really gonna do great and break from their dip with Mercenaries 2."

    I also agree Stammalama and they will with Army of Two as well. They are actually original games. They need to refresh games like Madden, Burnout, Medal of Honor, Need for Speed if they do this they'll have their fans back again.

  • trek_alldaylong

    Posted Feb 1, 2007 3:46 pm PT

    Suck it EA!

  • Jebril

    Posted Feb 1, 2007 3:35 pm PT

    Problem with EA is that they port their games to dead systems like GBA and GC and Xbox and PS3................Just playin

  • Stammalamma

    Posted Feb 1, 2007 3:35 pm PT

    EA is an excellent company, however, their wimpy earnings is definitely noticable in their lack of games. I agree with AofMlover, they definitely need to update the Need for Speed franchise, but I know they're really gonna do great and break from their dip with Mercenaries 2.

  • chaduma

    Posted Feb 1, 2007 3:31 pm PT

    It's only gonna get worse when All-Pro Football 2K8 comes out to compete against Madden.

  • Hutch_Eagles03

    Posted Feb 1, 2007 3:31 pm PT

    Funny how in a story about EA's finacial sump, gamespot still managed to take a shot at the PS3. If the PS3 sold 6 million; EA still would have sucked.

  • F1sTDaCuffS

    Posted Feb 1, 2007 3:28 pm PT

    well they could have made a lot of money if they would have done a map pack for bf2 when it was hot but they've missed that window

  • AofMlover

    Posted Feb 1, 2007 3:27 pm PT

    EA really need to upgrade its NFS franchise immediately. That used to be my favorite!

  • thug9cole

    Posted Feb 1, 2007 3:25 pm PT

    thats what you get for taxing me on godfather for cheat codes and guns you whores

  • HAMMER261266

    Posted Feb 1, 2007 3:22 pm PT

    Hmmm...could it be because most of their next gen sports games SUCK!!!...and people are tired of buying them!?!

  • ff7cloudking

    Posted Feb 1, 2007 3:22 pm PT

    SilV3RSix 1% growth because the memo got out that their games SUCK (select an action below) ______________ Report Abuse To Moderator Posted Feb 1, 2007 5:59 pm ET ______________________________________________________
    and its about damn time

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