EA loss widens as industry sees gains
Electronic Arts Inc. has a need for speed -- because its current pace is disappointing investors.
Slowing down as the rest of the industry gains momentum, the world’s biggest video game publisher Tuesday posted a wider quarterly loss and declining sales. It is making a bumpy transition to the next generation of consoles, which includes Microsoft Corp.’s Xbox 360, Sony Corp.’s PlayStation 3 and Nintendo Co.’s Wii.
EA, which makes “Need for Speed,” “Madden Football” and other popular games, said it lost $25 million, or 8 cents a share, during its fiscal fourth quarter ended March 31. That compares with a loss of $16 million, or 5 cents a share, during the same period last year. Revenue fell 4% to $613 million.
“They just haven’t been able to leverage their position as market leader,” said David Sandell, a portfolio manager for Leeb Capital Management Inc. in New York, which has sold its EA holdings.
Excluding stock-based compensation and other charges, EA earned 6 cents a share, better than the 2 cents a share expected by analysts polled by Thomson Financial.
At the same time, the video game industry roared ahead in the first three months of the year, with revenue from consoles, games and accessories up 54% to $3.3 billion in the U.S., according to NPD Group Inc., a market research company in Port Washington, N.Y.
EA’s “revenue was down while the industry went up,” said Michael Pachter, an analyst with Wedbush Morgan Securities in Los Angeles. “That means they lost share.”
EA’s new chief executive, John Riccitiello, vowed to “accelerate” the company’s business.
“Our focus is on increasing accountability, agility and speed to market,” said Riccitiello, who took over in February. “Expect some changes at EA.”
Shares in the Redwood City, Calif.-based company rose $1.57 to $52.94 on Tuesday, but lost $1.64 in after-hours trading after the earnings announcement.
EA’s shares are up 5% this year, compared with 17% for rival game publishers Activision Inc., based in Santa Monica, and 7% for Agoura Hills-based THQ Inc.
Analysts said they were disappointed by EA’s fiscal 2008 profit forecast, which was pegged from 90 cents to $1.20 a share. Analysts had expected the company to make $1.34 a share, according to Thomson Financial.
Games such as “Rock Band” and “Crisis,” which are expected to be big sellers this year, are being developed by other companies. EA is the distributor of those games but will get a smaller profit cut because it did not develop them.
In addition, the company announced that “Spore,” a highly anticipated homegrown title, was expected to be delayed until next year. “It’s clear that some of the disappointment in earnings guidance is due to a shift of ‘Spore,’ ” Pachter said. “That game has the highest margins of anything EA produces.”
