Electronic Arts Inc. (NASDAQ: ERTS): Q4 Earnings Preview 2011

Electronic Arts Inc. (NASDAQ: ERTS) is scheduled to release its fiscal fourth-quarter earnings after the closing bell on Tuesday, May 4, 2011. Analysts, on average, expect the company to report earnings of 22 cents per share on revenue of $923.88 billion. In the year ago quarter, the company reported earnings of 7 cents per share on revenue of $850 million.

Electronic Arts Inc. develops, markets, publishes, and distributes video game software and content. During the fiscal year ended March 31, 2010 (fiscal 2010), the Company was organized into three Labels: EA Games, EA SPORTS and EA Play, its EA Interactive organization (EA Mobile, Pogo and Playfish) and Global Publishing Organization.

In the preceding third-quarter, the Redwood City, California-based company's net loss was $322 million, or 97 cents per share, compared to a loss of $82 million, or 25 cents per share, in the prior-year quarter. On an adjusted basis, the company earned 59 cents a share in the fourth quarter. Revenue increased to $1.05 billion from $1.24 billion. Analysts, on average, expected the company to report earnings of 57 cents per share on revenue of $1.44 billion.

At its last earnings call in February, EA revised fiscal 2011 earnings. The company said that it now expects full-year GAAP loss of 90 cents to a loss of 77 cents per share, and non-GAAP earnings of 60 cents to 70 cents per share. The company forecast GAAP net revenue of $3.473 billion to $3.573 billion, and non-GAAP net revenue of $3.682 billion to $3.782 billion. Last half of the 2011 fiscal year will include restructuring charges of about $180 million. Previously, the company expected GAAP loss of 55 cents to 85 cents per share, and non-GAAP earnings of 50 cents to 70 cents per share. The company expected GAAP revenue of $3.35 billion to $3.60 billion, and non-GAAP revenue of $3.65 billion to $3.90 billion. 

Management believes that 2011 will be a strong year, driven by quality titles and robust growth in the Digital business.Electronic Arts forecasts Publishing and other revenue of $2.73 billion to $2.83 billion for fiscal 2011. Distribution revenue is expected to be approximately $200.0 million and Digital revenue to be $750.0 million for the fiscal year 2011. For fiscal 2011, non-GAAP gross profit margin is expected to be approximately 61%. Operating expense is expected to be approximately $2.0 billion. The company anticipates its top 20 titles, for fiscal year 2011, to generate roughly 77.0% of total packaged-goods revenue as compared with 76.0% in fiscal 2010. Electronic Arts, on a GAAP basis, expects operating cash flow in the range of $250.0 million to $300.0 million for fiscal 2011. 

For fiscal 2012, Electronic Arts forecasts double-digit earnings growth on a non-GAAP basis, driven by aggressive growth from the Digital segment. Recently, CEO John Riccitiello told investors that the company has a strong slate of digital and retail games for the 2012 fiscal year and is aiming for “market leadership” in first-person shooter games

For the fourth quarter, the company expects GAAP earnings of 38 cents to 51 cents per share, and non-GAAP earnings of 15 cents to 25 cents per share. GAAP net revenue is expected to be about $975 million to $1.08 billion, while non-GAAP net revenue is expected to be about $850 million to $950 million. For the fourth quarter, gross profit margin is expected to be in the range of 67.0% to 68.0% and operating expense in the range of $505.0 million to $520.0 million.

The video game industry is undergoing a significant transition, with increasing contribution from digital downloads, used game sales, game rentals, subscriptions, social network games and mobile game apps as compared to retail sales. The consumer demand for video game is likely to increase with the gradual improvement in the overall U.S. economy for 2011. The sector has seen an increasing amount of its casual gamers shift towards gaming on smartphones or Facebook applications recently. 

The company has cut costs, slimmed down its game portfolio, and begun issuing more cautious forecasts.EA has scaled back the number of titles in its development pipeline and is pushing further into digital through acquisitions of social gaming companies Playfish and Chillingo, the publisher of the popular Angry Birds title. In line with of its digital focus, EA recently acquired Melbourne-based tech start-up Firemint. EA has high hopes for an up-coming online multi-player "Star Wars" title being developed by its BioWare studio.  The company already has two franchises performing at the level required: FIFA and Battlefield.  Both brands have expanded into numerous business models and platforms, including mobile, Facebook, online free-to-play, and virtual item sales.

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Electronic Arts Inc. (NASDAQ: ERTS): Q3 Earnings Preview 2010

Electronic Arts Inc. (NASDAQ: ERTS) is scheduled to release its fiscal third-quarter financial results after the closing bell on Tuesday, February 1, 2011. Analysts, on average, expect the company to report earnings of 57 cents per share on revenue of $1.44 billion. In the year ago quarter, the company reported earnings of 33 cents per share on revenue of $1.35 billion.

Electronic Arts Inc. develops, markets, publishes, and distributes video game software and content. During the fiscal year ended March 31, 2010 (fiscal 2010), the Company was organized into three Labels: EA Games, EA SPORTS and EA Play, its EA Interactive organization (EA Mobile, Pogo and Playfish) and Global Publishing Organization.

In the preceding second quarter, the Redwood City, California-based company's net loss was $201 million, or 61 cents a share, compared to a loss of $391 million, or $1.21 a share, in the year-earlier quarter. On an adjusted basis, the company earned 10 cents a share in the latest quarter. Revenue dropped 23.5% to $884 million from $1.15 billion. Analysts, on average, expected the company to post a loss of 10 cents per share on revenue of $814.61 million.

At its last earnings call in November, EA predicted that December quarter earnings would come in between 50-60 cents a share on a sales range of $1.375 billion and $1.5 billion.  Non-GAAP gross profit margin is expected to be approximately 58%.

The company expects March quarter  non-GAAP revenue between $850 million and $975 million, and a non-GAAP EPS of $0.13 to $0.23. Non-GAAP gross profit margin is expected to be approximately 63% to 64%.

EA said that it continues to expect the total of $3.65 billion to $3.9 billion in fiscal '11 revenue on non-GAAP basis. In terms of non-GAAP EPS, the company maintained guidance for the full year at $0.50 to $0.70 per share on 334 million diluted shares. This corresponds to a non-GAAP operating income margin of approximately 68%, with approximately $5 million in other income and expense.

EA also said that the last half of the 2011 fiscal year will include restructuring charges of about $180 million

The company has been hurt by an industry-wide slump in video game salesT. he video game industry continued its dismal run for the second straight year, with sales down 6.0% year over year in 2010 to $18.58 billion, according to the research group NPD. Software sales declined 6.0% year over year to $9.36 billion. Including Personal Computer (PC) sales, software sales declined 5.0% to $10.1 billion in fiscal 2010.

The video game industry is undergoing a significant transition, with increasing contribution from digital downloads, used game sales, game rentals, subscriptions, social network games and mobile game apps as compared to retail sales. The consumer demand for video game is likely to increase with the gradual improvement in the overall U.S. economy for 2011. The sector has seen an increasing amount of its casual gamers shift towards gaming on smartphones or Facebook applications recently. 

EA has scaled back the number of titles in its development pipeline and is pushing further into digital through acquisitions of social gaming companies Playfish and Chillingo, the publisher of the popular Angry Birds title. In its most recent quarter, digital comprised more than 19% of the company's revenue, up from 12% during the year-ago quarter. This year, EA's digital business could make $750 million in sales, about a fifth of its revenue and enough to draw notice from investors seeking exposure to hot trends in mobile and social games. The company's upcoming Star Wars multi-player game, to be released in 2011, is expected to further boost its digital revenue stream.  Early in November, the company signed a five-year deal to use Facebook Credits as the only accepted method of payment for its games on the social networking site.Last month, the video game publisher also announced that it had expanded its Pogo casual games business to include mobile apps for the iPhone and iPod touch. The move places Electronic Arts in direct competition with Zynga, which offers similar games for mobile devices.

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Electronic Arts Inc. (NASDAQ: ERTS): Q3 Earnings Preview 2010

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.

Full Disclosure: None.