EA Posts $25 Million Loss in Q4; Net Income Plummets for Year

May 08, 2007 | By: James Brightman

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Leading publisher Electronic Arts posted a wider loss for the fourth quarter and its net income fell to just a third of its prior level last year. EA attributed this to a transition period with the next-gen platforms. The company's annual revenue was up, however, and 15 games based on wholly owned EA IP is scheduled for release this year. [Update: Will Wright's Spore delayed]

Electronic Arts today reported fiscal results for the fourth quarter and year ended March 31. The fourth quarter was a disappointment, as net loss widened from $16 million to $25 million. Net revenue was also down four percent from $641 million to $613 million. EA says this was due to the transition to the new consoles.

Analysts believe the company's sales dipped because the publisher didn't give enough support to Nintendo's Wii. "The hot console was the Wii, and they weren't in alignment in producing software," Janco Partners analyst Mike Hickey told Bloomberg.com. EA had two games available at the Wii's launch last November and the publisher specifically purchased Headgate Studios last year to boost its Wii development capabilities. EA now plans to have about a dozen Wii titles by the end of this year.

Sales in the fourth quarter were largely driven by Command & Conquer 3 Tiberium Wars, Need for Speed Carbon, Def Jam: Icon and The Sims 2 Seasons.

For the full year, net revenue climbed five percent to $3.091 billion, thanks to seven titles selling over 3 million copies each. The big winners were Madden NFL 07, Need for Speed Carbon, FIFA 07, The Sims 2 Pets, The Sims 2, Need for Speed Most Wanted and 2006 FIFA World Cup. Net income, however, took a precipitous drop for the year, falling from $236 million to just $76 million. Gross profit increased six percent to $1.879 billion.

Looking at a regional breakdown, sales in North America grew five percent to $1.666 billion, and sales in Europe increased seven percent to $1.261 billion; in Asia, however, sales dropped 15 percent to $164 million.

EA saw growth in a number of areas besides traditional video games. Its mobility-based revenue, including handhelds and cellular handsets, was up 37 percent to $540 million, as a "result of a full year of cellular handset revenue from the acquisition of Jamdat Mobile and sales growth on the Nintendo DS." The company also saw its digital revenue climb 47 percent to a record $127 million, and its Club Pogo casual service surpassed 1.5 million paying subscribers, which is up 23 percent year-over-year.

As of March 31, the company had cash, short-term investments and marketable equity securities of $2.976 billion.

"EA has a powerful set of franchises, strong brands and great talent," said John Riccitiello, Chief Executive Officer, who left private equity firm Elevation Partners to come back to EA earlier this year. "It is a great honor to rejoin this team and have the opportunity to build on its success."

"We have a strong lineup for the year ahead," added Warren Jenson, Chief Financial and Administrative Officer. "We expect to launch more than fifteen games based on wholly owned properties - including Medal of Honor Airborne, Army of Two, Boogie, MySims, Battlefield Bad Company [working title], SKATE and Need for Speed."

For the current quarter ending June 30, EA is expecting net revenue between $300 and $360 million and a loss per share between 56 cents and 66 cents. EA has only one major title planned for release this quarter: Harry Potter, which will launch worldwide on seven platforms on June 25. For the full year ending next March, the company has provided revenue guidance of $3.1 to $3.4 billion. Loss per share is anticipated to be in the range of 23 cents and 77 cents.

[UPDATE] In a conference call to discuss today's financial results, EA said that Will Wright's highly anticipated evolution sim, Spore, is no longer in the company's plans for the current fiscal year, which ends in March 2008. Most in the industry had expected the game to be released later this year, perhaps in time for the holiday shopping season.