Electronic Arts Inc. (NASDAQ: ERTS), the world’s second-largest video-game publisher, is scheduled to release its fiscal third-quarter 2010 financial results after the closing bell on Monday, February 8, 2009. Analysts, on average, expect the company to report earnings of 31 cents a share on revenue of $1.34 billion. In the year ago period, the company posted earnings of 56 per share on revenue of $1.74 billion.Electronic Arts Inc. operates as an interactive entertainment software company. The company develops, publishes, markets, and distributes video game software and content for video game systems, personal computers, wireless devices, and the Internet.
In the preceding second quarter, the Redwood City, California-based company reported a net loss of $391 million or $1.21 per share, compared to a loss of $310 million, or $0.97 per share, in the prior-year quarter. Excluding the impact of the change in deferred revenue and other items, non-GAAP net income for the second quarter was $19 million or $0.06 per share, compared to a non-GAAP net loss of $20 million or $0.06 per share in the year-ago quarter. Revenue declined 12% to $788 million from $894 million in the year-earlier quarter. Analysts, on average, expected the company to earn $0.07 per share on revenue of $1.13 billion.
Early in January, the video-game maker cautioned that its fiscal year 2010 earnings would be below the financial guidance provided earlier while revealing that it currently expects a net loss in the third quarter. The company said it that it expects to record a third quarter loss in the range of $0.24 to $0.32 per share and non-GAAP earnings in the range of $0.29 to $0.33 per share. Electronic Arts anticipates sales in the third quarter, excluding changes in deferred revenue, were $1.33 billion to $1.35 billion. Non-GAAP earnings excludes change in deferred net revenue, stock-based compensation, restructuring charges and other expenses.Excluding the impact of tax-related charges that may arise in connection with the Playfish integration, the company now expects fiscal year 2010 loss in the range of $1.94 to $2.24 per share, compared to the prior range loss of $1.20 to $2.05 per share. The company also said it now expects fiscal 2010 non-GAAP diluted earnings to be between $0.70 and $1.00 per share, compared to its prior guidance of about $1.00 per share. EA said in a statement that its results were impacted by "weakness" and "the overall packaged goods sector in Europe in December, and a product mix shift toward lower margin distribution in the December quarter, primarily in North America." Sales of its packaged games were down by as much as 15 per cent in some European countries, far worse than expected.
In November, Electronics Arts acquired Playfish, a creator of social network games, for about $275 million in cash and $25 million in equity retention arrangements. In addition, the sellers are entitled to additional variable cash consideration, up to a maximum of US$100 million, contingent upon the achievement of certain performance milestones through December 31, 2011.
EA has laid off hundreds of workers and closed development studios in an effort to control costs and adapt to the changing games market. In November, EA said that it will close several facilities and cut about 1500 jobs as part of a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities. he actions, the majority of which will be completed by March 31, 2010, will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million. It publishes more than 50 titles and has said that it plans to cut that to about 40 in the next fiscal year to focus on quality.
The traditional video gaming industry is in a state of flux, caught by the tailwind of the recession and threatened by the expansion of online gaming. Many of EA’s packaged games have failed to take off and its digital business, despite rapid growth, is too small to compensate.
According to NPD Group, sales of video-game hardware and software in the U.S. ended the year down 8% from the previous record-setting period. Holiday shopping failed to lift demand for games, as software sales slid 7% for the month of December compared to the same period the previous year.
The company's stock currently trades at a forward P/E (fye 31-Mar-11) of 22.64 and PEG Ratio (5 yr expected) of 2.83. In terms of stock performance, EA shares have lost 10 percent over the past year.
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