July 30, 2008 / 1:25 AM / in 10 years

EA loss narrows, but results short of expectations

SAN FRANCISCO/LOS ANGELES (Reuters) - Electronic Arts Inc reported a narrower quarterly loss as its revenue doubled on strong sales of some video games, but its shares fell as the results were short of analyst expectations.

Peter Moore of Electronic Arts demonstrates the game "Tiger Woods PGA TOUR 09" during the Electronic Arts news conference at the 2008 E3 Media & Business Summit in Los Angeles July 14, 2008. REUTERS/Mario Anzuoni

Chief Executive John Riccitiello said on a conference call on Tuesday strong sales of its blockbuster “Rock Band” game were offset by weaker-than-expected sales of “catalog” games.

But Riccitiello, who has spearheaded a turnaround strategy at EA to reverse years of stagnation and increasingly tepid responses to its games, said he expects several new games from its stable to drive sales growth in the 2009 fiscal year.

“Innovation and quality have stepped up from a year ago,” he said.

He said new EA titles such as the long-awaited “Spore,” “Mirror’s Edge” and “Warhammer Online” earned high marks from critics at the recent E3 video game industry trade show.

Redwood City, California-based EA is relying on these new titles to drive sales during the upcoming holiday season.

Spore, the latest brainchild of “Sims” creator Will Wright, has generated a lot of online buzz, and its release is highly anticipated by gamers. EA said Spore will launch on September 7.

Taking its cue from evolution theory, Spore has players customize microbe characters according to environmental and population changes, and analysts wondered what sort of long-term impact the game will have.

“There will be a large-enough base of early adopters where the game should sell well,” said Lazard Capital Markets analyst Colin Sebastian. “The question we have is — long term, how long are (Spore’s) legs?”

Janco Partners analyst Mike Hickey said games have to be fun as well as good to enjoy big sales. “It’s fascinating, it’s thoughtful, but it’s unclear if it’s fun,” he said of Spore.

Riccitiello declined to comment on the call on the status of EA’s $2 billion bid for Take-Two Interactive Software Inc, publisher of the hugely successful “Grand Theft Auto” game. Take-Two has rejected the offer, saying it was too low.

Regulatory authorities are currently investigating the deal on antitrust grounds.

Analysts said EA’s earnings this quarter and its holiday game line-up are strong enough for the video game publisher to hold its $25.74-per-share offer price for Take-Two steady.

“(EA) sort of indicated that its first quarter was essentially in line with their internal expectations. It sounds like the Street had different expectations in the company and so I don’t think we can conclude from this quarterly report that it’s more important for EA to acquire Take-Two,” Lazard’s Sebastian said.

GUIDANCE GAP

Analysts attributed the discrepancy between Wall Street’s expectations for the quarter and EA’s actual results partly to EA giving only annual instead of quarterly earnings guidance.

“It’s completely a questionable choice to not give (quarterly) guidance,” Wedbush Morgan’s Michael Pachter said. “If they don’t give guidance, they’re creating a mystery.”

EA said it expects full-year net revenue of between $5 billion and $5.3 billion, while analysts, on average, are expecting $5.14 billion, according to Reuters Estimates.

The company, which also publishes popular sports games like “Madden NFL,” posted a fiscal first-quarter net loss of $95 million, or 30 cents a share, compared with a loss of $132 million, or 42 cents a share, a year before.

On an adjusted basis, EA posted a loss of 42 cents per share, 7 cents wider than the average loss expected by analysts, according to Reuters Estimates.

Net revenue more than doubled to $804 million from $395 million a year ago, though the latest quarter included a $231 million boost due to deferred revenue, EA said in a statement.

Excluding deferred revenue and other items, EA’s revenue of $609 million fell far short of the average Wall Street target of $640.4 million, according to Reuters Estimates.

Shares of EA fell as much as 3 percent from a Nasdaq close of $47.40 in after-hours trade, before recovering some to trade at $46.75, down 1.4 percent.

Editing by Braden Reddall

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