EA profit outlook below Street

By : |November 3, 2010 0

SAN FRANCISCO, USA: Video game publisher Electronic Arts Inc reported higher-than-expected second-quarter results, boosted by robust sales of "FIFA 11", but it unveiled another restructuring and set a profit forecast for the holiday period that was below Wall Street’s target.

EA has shored up its financial situation and is making a big bet on social, online and mobile games, but the company still lacks the chart buster franchises that underpin the success of rival Activision Blizzard.

EA made its name on sports games, and the September quarter was lead by soccer title "FIFA 11", which sold roughly 8 million units. It managed to ship "FIFA" in both North America and Europe in the quarter, which helped pull in sales that would normally have occurred in the December period.

                                 

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That helped the company post a surprise profit on a non-GAAP basis.

EA announced a restructuring plan that chief financial officer Eric Brown said will provide greater flexibility by changing the terms of key license and development agreements.

The plan will include "very modest" head-count reductions, and EA should see the benefits starting in fiscal 2012, Brown said. It will cost $180 million in restructuring charges in the second half of fiscal 2011.

Brown also said EA has so far sold roughly 4 million units of "Medal of Honor", a key holiday release that the company had hoped would be a competitor to Activision’s "Call of Duty", but which drew some poor reviews.

Once the dominant video game publisher, EA is in the midst of a turnaround effort that has proceeded in fits and starts. After a difficult 2009, the company cut jobs and pared its game portfolio to focus on fewer, bigger titles.

EA forecast earnings excluding items for the December quarter of 50 cents to 60 cents a share on non-GAAP revenue of $1.375 billion to $1.5 billion. Analysts are expecting earnings excluding items of 70 cents on non-GAAP revenue of $1.44 billion. EA also maintained its forecast for fiscal 2011.

ThinkEquity analyst Atul Bagga said EA is continuing to be cautious in its outlook.

"I think its prudent for the company to guide conservatively, they don’t get any benefit from guiding higher," he said, noting that EA already has a relatively high price-to-earnings multiple.

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Betting on digital

EA hopes its focus on digital — which includes mobile, downloadable and Internet-based games — pays off down the line, as gamers change how they play.

EA reported a net loss for the fiscal second quarter ended Sept. 30 of $201 million, or 61 cents a share, versus a net loss of $391 million, or $1.21 a share, in the year-ago period.

Excluding items, EA’s had a profit of 10 cents a share, better than the average analyst estimate for a loss of 10 cents, according to Thomson Reuters I/B/E/S.

Non-GAAP revenue came in at $884 million, down 23 percent but ahead of Wall Street’s target of $814.9 million. Digital sales continued to be strong, rising 20 percent.

EA is the No. 1 game publisher on Apple’s App Store, where millions of people are now buying games. EA last year bought social gaming company Playfish in a deal valued at up to $400 million. Earlier this month, the company acquired iPhone game publisher Chillingo.

The company is also preparing its most closely watched release in years, "Star Wars: The Old Republic", a multiplayer online game that EA hopes will provide it with the same recurring revenue stream that Activision gets from "World of Warcraft".

EA is said to be spending in excess of $100 million to develop "Star Wars," which analysts expect to be released next year.

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