Electronic Arts to post 3rd-quarter results Monday; eyes on turnaround

Friday, February 5, 2010

Earnings Preview: Electronic Arts

NEW YORK — Video game publisher Electronic Arts Inc. reports its fiscal third-quarter results after the stock market closes Monday, the day after running its first-ever Super Bowl advertisement.

WHAT TO WATCH FOR: EA, known for games such as “The Sims” and the popular “Madden” football series, gave a forecast below expectations in January amid lower-than-expected game sales. Barring any surprises, investors will be watching for what’s ahead. The company may announce further cost cuts, though it already said in November it was cutting its work force by 17 percent, or 1,500 people, as it tries to align its business with a transforming video game industry.

“By now, investors are largely looking past (fiscal 2010), but strong sell-through of the company’s March-quarter releases could signal the start of longer-term franchises,” said Broadpoint AmTech analyst Benjamin Schachter in a note to investors.

EA’s “Mass Effect 2,” he added, is off to a “very strong start.” But Schachter said he has “very modest expectations” for “Army of Two: 40th Day,” and he said he doesn’t expect either “Dante’s Inferno” or “Battlefield Bad Company 2″ to be “huge hits.”

WHY IT MATTERS: EA is the world’s largest stand-alone video game publisher, so its results are a good barometer for how the industry is doing as the economy rebounds and consumers start spending again. The company is also aggressive about new revenue streams from digitally distributed content, such as virtual items and social network games. While it’s still a small part of EA’s business, good ideas on this front will determine whether game companies are still around in a decade, as game discs go the way of CDs.

WHAT’S EXPECTED: Analysts, on average, expect a profit of 31 cents per share on revenue of $1.34 billion, according to a poll by Thomson Reuters.

LAST YEAR’S QUARTER: EA reported a net loss of 10 cents per share on revenue of $1.5 billion. But it posted a profit of 90 cents per share and revenue of $1.73 billion on an adjusted basis, which changes the way the company accounts for some online content it sells to deal with fluctuations in deferred revenue.

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