EA reports $81 million quarterly loss--but beats expectations

August 1, 2006 2:17PM PDT

Megapublisher's 13 percent increase in revenue can't offset next-gen transition costs, but shortfall comes in much less than expected.

Hamlet may have suffered the slings and arrows of outrageous fortune, but few companies have been the subject of as much verbal sniping as Electronic Arts. The biggest third-party publisher in the world is a preferred punching bag for many gamers, who take potshots at it for everything from its movie-license tie-ins to its monopoly on NFL, NCAA, and Arena football games.

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EA executive vice president Frank Gibeau gives his outlook on the console landscape, including an upcoming "market expansion."

Today, the company took a hit of a more substantial nature--that is, financial. For the first quarter of its fiscal year, which ended June 30, 2006, the company reported an $81 million loss. That was $23 million more than the $58 million the company lost during the same period in 2005.

The primary reason for the shortfall was "the expensing of stock-based compensation," according to EA. It also hinted that it was spending a good amount of money preparing for the transition to next-generation consoles.

"We're pleased to be the leading publisher on the Xbox 360," said EA CEO and chairman Larry Probst. "We are on schedule with strong support for the launch of PlayStation 3, and we have increased our development efforts for the Nintendo DS and Wii."

But while Probst was confident, EA CFO Warren Jenson was more cautious. "While the risks of this technology transition remain very real--our franchises are well-positioned for the opportunities ahead," he said in a statement.

EA's losses came in spite of a 13 percent increase in overall revenue. The company took in $413 million during the April-June 2006 quarter, compared with $365 million the year before. Though still in the red, EA's earnings were better than anticipated. According to a "consensus" of analysts cited by industry-research group Thomson First Call, the company was expected to report $335 million in earnings--$78 million less than its reported revenue.

[UPDATE] In its earning statement, EA singled out five titles--2006 FIFA World Cup, Battlefield 2: Modern Combat, Need for Speed Most Wanted, The Sims 2, and Fight Night Round 3---as being bestsellers. In a conference call with analysts after its report was issued, Jenson shoveled praise on 2006 FIFA World Cup. The game exploited massive interest in the quadrennial event, selling more than 2.8 million units worldwide prior to June 30.

On the PC front, the content expansion The Sims 2 Family Fun Stuff sold over 700,000 copies during the quarter. However, strong sales of that and other Sims 2 games couldn't stop EA's PC revenue from dropping precipitously. Compared to the same period the year prior, the company's PC sales slid 11 percent to $66 million. However, Jenson said the year-on-year comparison was skewed by the success of Battlefield 2, which was released in late 2004 and was a top seller for much of 2005.

On the console tip, EA took in $194 million, a 6 percent increase from the same quarter the year before. Jenson credited the Xbox 360 for the increase, saying it "more than offset the decline in all current generation revenue." The exec boasted that three of the top 10 titles for Microsoft's next-gen console in North America and Europe were from EA, though it did not name any titles other than Battlefield 2: Modern Combat.

On the portable front, EA's revenue was "flat year over year." The four products, or SKUs, the company launched during the quarter--two less than the year before--took in $52 million during the three-month period.

By Tor Thorsen