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Accounting change muddles EA Q2 earnings

By Tor Thorsen, GameSpotPosted Nov 1, 2007 2:19 pm PT

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!

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