Accounting change muddles EA Q2 earnings

Exclusion of $296 million causes megapublisher to report 18 percent decline in revenue despite record-breaking sales; 350 layoffs announced, UK Chertsey office closing.

This morning, the market was bullish about Electronic Arts. A poll of analysts taken by Thomson Financial predicted the world's biggest third-party publisher would report over $896 million in earnings for the three months ending September 30, 2007. However, shortly after the closing bell rang on Wall Street, the Redwood City, California-based publisher reported just $640 million in revenue during its second fiscal quarter--a massive 18 percent year-on-year decline.

Though technically accurate, the shortfall stems from a change in EA's accounting practices which will see $296 million in revenue from "certain online-enabled games" not being reported until unspecified "future periods." If included, the figure would have boosted EA's quarterly earnings to over $936 million--significantly above analysts' estimates.

"Our strategic priorities on quality, innovation and managing cost are showing progress," said EA CEO John Riccitiello in a statement. "Highly accessible new properties like Skate and MySims have broken through with consumers and EA Sports continues to deliver great experiences on every platform."

As one might expect in the July-September quarter, EA Sports' biggest hitters were on the gridiron and soccer pitch. American football favorite Madden NFL 08 sold 4.5 million copies on all platforms, and FIFA 08 just missed the 3 million-unit mark. In nonsports sales, EA said MySims sold over 1 million units internationally, but did not provide figures for Skate. According to the latest NPD report, the 360 version of the game sold 175,000 copies in the US after its September 14 debut.

Overall, EA said it sold $399 million worth of games for what it is now officially referring to as "current-generation consoles"--the Wii, Xbox 360, and PlayStation 3. In particular, it touted the fact it is the top third-party Wii publisher in North America and Europe, where it has a respective 12 percent and 13 percent market share. In a postreport conference call, EA announced it now considers the Xbox, GameCube, and PlayStation 2 "legacy systems" and said revenue from the platforms had sunk 50 percent from the prior year. On the handheld front, Jenson said North American DS revenue had tripled from the same period in 2006.

Riccitiello also alluded to the "routine" layoffs EA confirmed last week. "We've also announced a restructuring as part of a plan to better align cost with revenues," he said. The 24-month plan will cost EA between $90 million and $110 million, but will result in around $25 million to $30 million in annual savings.

In a conference call with investors, EA CFO Warren Jenson said that roughly 350 employees would be let go in all. Hardest hit by the plan will be EA's Chertsey office in the UK, which will be closed down in the coming months.

For its full 2008 fiscal year, which ends on March 31, 2008, EA expects $3.35 billion and $3.65 billion in revenue, an increase of $150 million over its previous prediction. For the current quarter--which includes major EA titles such as Crysis and Mass Effect--the company expects to reap between $1.325 billion and $1.575 billion in sales.

75 Comments

  • Mezzanne

    Posted Nov 10, 2007 2:08 am PT

    It's so easy to hate EA. I try not to bash things too much but when it comes to EA, there's so much to hate... I'm not buying Crysis because it's published them ,a bit lame maybe - but I think I'll enjoy UT3 more anyway so I'll go for that. I really hope EA does die down a little, if only for the sake of independant studios out there. "Innovation"... LOL, EA doesn't know the first thing about innovation.

  • ebookerd1

    Posted Nov 9, 2007 7:23 am PT

    "In a postreport conference call, EA announced it now considers the Xbox, GameCube, and PlayStation 2 "legacy systems" and said revenue from the platforms had sunk 50 percent from the prior year."

    Wow that is amazing 5 year old game system sales are down 50 percent. Huumm? I wonder if they noticed That there are over 20 million Wii, 10 over Million Xbox 360's, and 7.8 million PS3's on the market. Oh I don't know Maybe they should taget the new consoles for review? IDIOTS!!!

  • Bozanimal

    Posted Nov 6, 2007 1:41 pm PT

    EA is awash in cash (somewhere in the neighborhood of $2.5 to $3.0B) and has no debt, the reason behind all their acquisitions, I'd wager. These types of changes in accounting practices are rare but are unlikely to affect the day-to-day operations of the business, so its viability is not in question. I still think the stock is overpriced with a Forward P/E of 30, but they sure have a lot of quality talent in their underlying businesses. Between the sports titles and some of the recent studio acquisitions, and even older purchases like the Command & Conquer series years ago, the company has a lot of game franchises that bring in the revenue. There seems to be no stopping them in the gaming space, at this point. Then again, maybe they've peaked, it can be tough to tell when things are looking rosey.

    Sorry about bringing all that finance into the EA hate forum. You may continue ranting now.

  • Themilkman418

    Posted Nov 5, 2007 3:13 pm PT

    They made skate which is good...

    thats about it

  • Sannerkind

    Posted Nov 4, 2007 7:46 am PT

    I don't like EA for the simple reason Is that they will make a game that Is totally flawed and they will be like....screw It put It for sale anyway.

  • Langway

    Posted Nov 4, 2007 12:43 am PT

    I'll buy Mass Effect, simply because BioWare nearly completed it before EA made their purchase.

    And robbie_basic? I wish I could point to a date in time were the general public gave in and started buying buggy, incomplete, not ready for the market games and operating systems. Give me your ip address, and I'll show you just how bad Vista really is (don't really send it, just making a point...don't want to get booted for making threats).

    As usual though, EA's sales will go through the roof, and since I'm not privy to the specifics on their buy-out of Bio/Pan - I'll sit the fence on the future quality of their games.

    My real sorrow lays with those loosing their jobs. I hope they find work in more creative and less restrictive environments.

  • Birdman1333

    Posted Nov 3, 2007 8:07 pm PT

    How about some middle ground here? Only buy one Madden per generation, one NASCAR if you must per generation and only good quality games. I stopped buying PC games because I got tired of the bugs/freezes/drivers problems.

  • puppiemaster

    Posted Nov 3, 2007 6:03 pm PT

    EA is supporting the Wii now, it will make more money

  • robbie_basic

    Posted Nov 3, 2007 7:11 am PT

    Daffron you need stop hating companies simply because they are big. Everything you say is unsubstantiated and people like you ruin the world. You probably hate Vista also which is the best closed source operating system available.

  • Daffron

    Posted Nov 3, 2007 3:52 am PT

    Gets hard to boycott EA when they buy out all form of competition. Their console games are constant re-hash's and PC games ALWAYS ALWAYS come out unfinished and need a shed load of patching

  • xunzhe

    Posted Nov 3, 2007 2:57 am PT

    'Our strategic priorities on quality, innovation and managing cost...'

    i LOL when i read that statement, despite of what Riccitiello claims, it proves to be otherwise. I thitnk the decline in profit is partly due to buying of Bioware/Pandemic as well. I think EA will eventually gain its losses .

  • MasterChief725

    Posted Nov 2, 2007 7:32 pm PT

    yeah, no one likes EA, they can go die or something, Activision forever!

  • i_got_you60

    Posted Nov 2, 2007 6:58 pm PT

    now iam happy ea you suck .....buying companies and stuff just wont cut it iam gonna put a no ea avatar now but i guess they make some mollah with crysis and they already made some with the orange box and iam betting mass effect that game is gonna be a hit as well so ea is profits are gonna double and triple or w\e with those games

  • MasterChief725

    Posted Nov 2, 2007 3:53 pm PT

    YES!! BOYCOTT EA!!!! I saw NFS: carbon at the store yesterday $20 for special edition..i was like.....IN COMMUNIST EA! U DONT BUY PRODUCT, PRODUCT BUYS U!! and then i left! NO MORE EA!

  • JoeTheFunk

    Posted Nov 2, 2007 11:44 am PT

    i used to work at the chertsey offices, what a shame to see them shut, such an amazing place to work! I was there for a few months and EA were not hard on me but i was just a tester, others got drilled tho.

  • enoslives7

    Posted Nov 2, 2007 11:08 am PT

    EA SHUX !!!! Everything they touch, turns into crap. the only reason they're still around is that they have a stranglehold on sports games (and gamers)

    BOYCOTT EA !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • chakan2

    Posted Nov 2, 2007 10:45 am PT


    "All this hate for EA is completely misplaced and juvenile"


    Actually not really. EA is notoriously hard on their Employees, and frankly over the last few years their games have really started to suck.

  • chakan2

    Posted Nov 2, 2007 10:43 am PT

    EA = SOE = The 4th circle of hell. (I'd go with 3rd, but that's reserved for Republicans)

  • Destroyeron13

    Posted Nov 2, 2007 10:25 am PT

    EA > SOE

  • upstartrex

    Posted Nov 2, 2007 10:25 am PT

    Remember in a previous article when an EA rep. said they weren't closing any branches? Now they've closed a branch. I thought there'd be some consolation in hearing EA actually is taking a temporary loss, as the headline implied, but no -they're not reporting their full profits. Online games being a year-round yield they could be reported at any time, maybe saved for a rainy day. Hopefully EA will reform or a developer will become its' own publisher and not sell out. Which's more likely?

  • wretler

    Posted Nov 2, 2007 9:43 am PT

    I dont give a **** about EA I only care about the games independently wich company makes it

  • Josepiphus

    Posted Nov 2, 2007 8:44 am PT

    lol... All this hate for EA is completely misplaced and juvenile. I mean I don't like they're practise of rehashing games year after year but I'm not going to complain about it or call them the devil of game companies and honestly they're actions over the last month suggest that they have heard the consumers grumbles and are taking steps to improve.

  • ldonyo

    Posted Nov 2, 2007 8:44 am PT

    Aw, no more counting their chickens before they hatch. I wonder just how much they brought in by charging for downloadable content that used to be free? Maybe they were expecting more sheep to just cough up cash for uniforms, stadiums and cars?

  • nobeaner

    Posted Nov 2, 2007 8:21 am PT

    I have to agree with Caboose7293. Who keeps buying The Sims games? I admit to having tried them and purchased some at one point. But after playing one long enough there was really no point to the rest.

  • Rumstocker

    Posted Nov 2, 2007 8:13 am PT

    the accounting change is called FOLLOWING THE LAW ... they make it sound like they are doing it by choice.... they can't report earned revenue until it is realized........ it's like a sports contract, the entity doesn't perform, you don't get paid.... although they may likely make the $296 million, they haven't made it yet............. you don't make a choice and miss your forecasted earnings by that much............................... no much to compain about though, they still made a lot of money

  • Gruug

    Posted Nov 2, 2007 8:04 am PT

    All I can say is that EA didn't get any of my money. And they won't be getting any for the foreseeable future. IF EA significantly improves their QA of games (both PC and console) then maybe I might buy from them again. Until that time, see ya EA.

  • PS3Compass

    Posted Nov 2, 2007 7:43 am PT

    I hate EA.

  • dorohala

    Posted Nov 2, 2007 7:24 am PT

    I really love EA because the games they bring out I always play on it!!!!
    They are very good developers!

  • Autolycus

    Posted Nov 2, 2007 6:50 am PT

    "cra p we made profit! we better fire some hard working people!" - EA Logic

  • mrkame16

    Posted Nov 2, 2007 6:49 am PT

    I think the staff that gets lay-ed off should start there own independent studio. 350 people thats a small business right there.

  • master_blue

    Posted Nov 2, 2007 4:26 am PT

    routine layoffs ....we love you EA...really!!!11

  • beckoflight

    Posted Nov 2, 2007 4:09 am PT

    I love this kind of news !

  • Erebus

    Posted Nov 2, 2007 12:19 am PT

    Somini writes: "'Our strategic priorities on quality, innovation'... Blah, blah... That was hilarious... When has EA ever been about quality and innovation, I wonder..."

    Ever since EA started buying actual talent.

  • demoralizer

    Posted Nov 1, 2007 10:24 pm PT

    Sounds like good news to me

  • Pete5506

    Posted Nov 1, 2007 10:18 pm PT

    Its EA

  • Feibie

    Posted Nov 1, 2007 9:58 pm PT

    Lol srsly, some of the EA games i've been playing are good, maybe not the best that they could do but they're putting heaps of effort into some of them, it's probably true that the business men are like tyrants and the programmers and such are like slaves but we can't do !@#$ lol. heck, more than half my games are EA....

    I'm a blizzard fan boy though lol Blizzard makes the best games for "Me" that means me not you if you have a differen opinion, i'm not trying to start flame wars k lol

    and those workers that work 80+ hours a week, i think they're the ones that are making some of the games better than what EA usually produces so "Cheers" for them : )
    i Enjoy Command and Conquer 3 thank you very much

  • Caboose7293

    Posted Nov 1, 2007 8:15 pm PT

    Ocasionally there comes a good EA game: Crysis, skate., etc... . However, this does not make up for all the $*** they put out; Battlefield 2 is still a work in progress, 2142 is just a reskinned mod, MOH: Airborne shipped unfinished... AND WHO KEEPS BUYING THESE SIMS GAMES???? WHICH ONE OF YOU PUTS THE SIMS GAMES ON THE TOP SELLING LIST? Every time a new "The Sims 2" expansion comes out, it somehow cracks the topselling list, over REAL games. (I personally think EA buys 1M units of the game from themselves to get it on the charts, cuz WHO BUYS THAT CRAP??)

  • PlanoPunisher

    Posted Nov 1, 2007 8:01 pm PT

    Having a UK studio has become too epensive for U.S. companies. With the awful exchange rate, they can't afford to pay UK salaries.

  • Devvy01

    Posted Nov 1, 2007 7:36 pm PT

    These always report on RRP prices of titles never the discounted amounts that they are sold for from on-line shops etc. I wonder how much is really true?

  • DonutTrooper

    Posted Nov 1, 2007 7:34 pm PT

    EA's business models and practices make me sick. I don't hate the games they make, I actually pity them and feel bad for the devs. Think about it:

    A sports game like Madden has to be made EVERY year. On top of that, it has to hit the PS2, GC, Wii, DS, PSP, PS3, 360, PC, maybe OS X, who knows. So if they do anything, they need to waste time translating it into every single platform. And people complain that the games are just edited source codes....have they ever made games, or know how long it takes to write a decent enough source code for a single platform, let alone NINE?

    Don't hate the makers and devs, hate the number crunching businessmen who just care about the money, because a dev team would never WANT to make a crappy game, it just comes out that way.

  • trackmanep233 posted Nov 1, 2007 7:25 pm PT (does not meet display criteria. sign in to show)

    trackmanep233

    Posted Nov 1, 2007 7:25 pm PT (hide)

    AHAHAH PPL HATE PUBLICLY ON EA, BUT THEY SECRETELY LOVE EA AND ITS GAMES....(let the flaming begin!)

  • mach-stem

    Posted Nov 1, 2007 6:17 pm PT

    "Lumenadducere With all the hate EA gets, I really sometimes wonder why they're getting so much money.

    Then again, the majority of those who play videogames probably have no idea about EA's practices, so it makes sense."

    It's easy: people get conned into buying a possibly great game, it is unfinished, but the damage is already done: people complain.

    They released MoH Airborne with a 100mb patch ready for release...and people still bought it. That makes EA smart and the consumer stupid.

    BF2 was my limit...still to this day, it is not fixed, there are still problems...so I mod and play the hell out of it, cause I'll get my 60$ out of it!

    PEACE

  • jc_tkml

    Posted Nov 1, 2007 5:57 pm PT

    as long as skate is untouched I could careless

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