By Sarah E. Needleman
Electronic Arts Inc. swung to a profit on stronger-than-expected
revenue in its third fiscal quarter, as more consumers in the
holiday season snapped up software for discounted videogame
consoles and downloaded more digital content.
The results easily topped analyst expectations and the company's
own projections. But EA's forecast for the fourth quarter was
weaker than Wall Street expected, which the company attributed
partly to sales that may have been accelerated to the third
period.
EA's shares rose 4.5% in after-hours trading.
The company, based in Redwood City, Calif., is known for
videogames such as the Madden NFL franchise, FIFA soccer titles and
the newer "Titanfall" shooting game. The company and some
competitors have been aided by demand for new software following
the fall 2013 introduction of new game consoles from Sony Corp. and
Microsoft Corp.
But Blake Jorgensen, EA's chief financial officer, said sales of
software for older consoles being sold at discounted prices such as
the Xbox 360 were surprisingly strong.
"The discounts might have brought new buyers into the market
that didn't exist before," he said in an interview. "There's a
consumer that didn't want to spend $400 on a console."
Demand for software for the latest generation of consoles also
outperformed EA's results last year, now that they have also come
down in price, Mr. Jorgensen added. "Our products did better than
we expected and the overall market was stronger than we expected,"
he said.
The sales surge above expectations in part prompted the company
to temper its forecast for the quarter ending March 31. "Some
people may have been buying in Q3 that we assumed would buy in Q4,"
Mr. Jorgensen said.
The conservative forecast also takes into account the highly
anticipated mid-March launch of "Battlefield Hardline," the newest
edition of the company's popular shooting franchise, which was
originally supposed to hit shelves last fall but was delayed in
response to feedback from beta testers, among other factors.
Other reasons for the tempered outlook next quarter include
plans to delay shipment of two products--a PGA golf game and a Sims
expansion pack--from the fourth quarter to the beginning of the
next fiscal year.
Additionally, EA is awaiting revenue from sales of its FIFA
franchise in Asia, which is dependent in part on help from partner
Tencent Holdings Ltd. "We don't know if we'll be able to recognize
that revenue in Q4 or Q1," Mr. Jorgensen said, adding that the
company could be affected by worsening currency-exchange rates.
EA said it generated the most revenue and unit sales of software
last year for Sony's PlayStation 4 and Microsoft's Xbox One of any
game publisher in the world based on data it gathered from a
variety of sources, including market-research firm NPD Group.
Two of the latest games from the company's FIFA and Madden NFL
sports franchises made NPD's list of the top 10 selling games in
December and all of 2014. And EA's third installment of fantasy
franchise "Dragon Age, " released in mid-November, sold
"substantially" more units last quarter than any made by the game
studio BioWare, said Mr. Jorgensen, declining to provide
specifics.
The company posted net income for the period ended Dec. 31 of
$142 million, or 44 cents a share, compared with a loss in the
year-earlier period of $308 million, or $1 a share. Revenue rose to
$1.26 billion from $808 million.
Adjusting for items such as deferred revenue from services, the
company reported earnings per share of $1.22 on $1.42 billion in
revenue. Analysts on that basis had expected earnings of 92 cents a
share on revenue of $1.29 billion, according to Thomson First
Call.
For the quarter ending March 31, EA on that adjusted basis had
projected earnings a share of 22 cents on revenue of $830 million.
Analysts had expected earnings of 26 cents a share on revenue of
$912 million.
EA said it generated a record digital revenue on a trailing
12-month basis of $2.18 billion, accounting for more than half of
net revenue over the same period. For the latest quarter, digital
revenue reached $693 million, including $139 million--or roughly
20%--in mobile sales.
Mr. Jorgensen said mobile revenue mainly comes from in-game
transactions, with key drivers being "SimCity BuildIt," "Madden NFL
Mobile" and "FIFA 15 Ultimate Team." "As players get deeper in the
engagement with a title, they oftentimes will monetize by trying to
improve their gameplay in some way," he said.
EA has trimmed its operating costs in recent years in part by
spending less on traditional mass marketing such as TV commercials
in favor of more targeted digital outreach such as through social
channels, email and online gaming communities. "Our revenue keeps
going up and our expenses keep going down," Mr. Jorgensen said.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
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