EA sees $16 million quarterly loss, annual revenue decline

Price drops, one-time tax charge wipe out number one third-party publisher's quarterly income; Jamdat acquisition cuts into yearly revenue of $2.95 billion.


The good news: During the fourth quarter of its fiscal year, which ended on March 31, Electronic Arts' net revenue was $641 million, a 16 percent rise over the same period a year ago. The jump was due to brisk sales of several of the Redwood City, California-based publisher's releases this year. Six titles sold more than one million copies during the three-month period, including Black, Fight Night Round 3, The Godfather, Need for Speed Most Wanted, FIFA Street 2, and The Sims 2.

The bad news: EA posted a $16 million net loss for the quarter, versus an $8 million net profit in the same quarter in 2005. That means, after expenses, the company made $24 million less than it did the previous year during the three-month period. A big contributor to the reduced revenue was EA's move to cut the price of many of its new current-generation console releases--including Black, The Godfather, and Fight Night Round 3--by 20 percent in February.

As a result of the earnings report, which was below analysts' estimates, Electronic Arts' stock plunged in after-hours trading, sinking some $3.90 (7.16 percent) to $50.60 per share as of press time.

Electronic Arts also announced its full fiscal year results today, which saw a 6 percent decline in revenues and an even larger drop in profits. For the 12 months ending March 31, it profited $236 million from $2.95 billion of income, versus the $504 million it made from $3.13 billion of revenue the year previous.

Why the slide? Besides a one-time $375 million tax charge due to its use of foreign labor, the company also blamed "$59 million of charges principally associated with acquisition-related activities." EA bought mobile publisher Jamdat in December 2005 for a reported $680 million.

During a conference call after the earnings release, executives played up the high points of the prior fiscal year. "We ended the year with 27 platinum hits, of which 12 were double platinum," said EA CFO Warren Jenson. The number one title for the year was Need for Speed Most Wanted, but Jenson also singled out Black as a top performer with 1.5 million copies sold. He also proclaimed that NBA Live and Harry Potter joined the Madden, Need for Speed, Sims, and FIFA franchises in the elite circle of properties that have generated $1 billion for EA.

Jenson also revealed that EA's exclusivity agreements with the NFL and FIFA are bearing fruit, with Madden NFL 06 selling 10 percent more than Madden NFL 2005, and FIFA 06 selling 20 percent more than FIFA 2005.

As for news of specific games, the company announced delays for its upcoming Superman Returns and Medal of Honor: Airborne games.

With the transition to next-gen consoles partly completed, Jenson partially broke down the cost of switching development to the new platforms. He said in the company's last fiscal year, it spent $758 million on research and development. Of that, $600 million was invested in "EA's worldwide studios on technology, console, and PC products," with another $100 million going to games for "cell phones and handhelds."

As for the year ahead, Jenson said he expects game sales in North America and Europe to be either flat or fall as much as 5 percent. He said EA is expecting the Nintendo Wii and Sony's PlayStation 3 to "launch successfully," but also conceded one or both could experience supply problems akin to those suffered by the Xbox 360. Jenson also underlined the uncertainty of the current transition year. "While we feel we are in great shape on the Wii and the PS3, we, like the rest of industry, still have not built a game," he said. "Many unknowns exist."

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