Electronic Arts posts smaller loss, misses targets

Video game publisher Electronic Arts Inc. posted a smaller net loss for its fiscal first quarter Tuesday and more than doubled its revenue thanks to soaring sales of games such as "Rock Band" — even as it spent more on marketing and development.

Both the earnings and revenue figures fell short of analysts' estimates, however, and EA shares slipped in extended trading.

EA said Tuesday its loss for the quarter ended June 30 totaled $95 million, or 30 cents per share, compared with a loss of $132 million, or 42 cents a share, a year earlier.

On an adjusted basis, the company lost 42 cents per share this quarter, short of the 33 cents per share that analysts polled by Thomson Financial were expecting.

A loss in the slower spring and summer season is typical for video game companies, which make most of their money during the holidays. The profit and sales outlook EA issued Tuesday for the full fiscal year fell within the range of analysts' expectations.

The Redwood City, Calif.-based company's sales for the quarter jumped to $804 million from $395 million in the year-ago period. But they were boosted by the recognition of deferred revenue for certain online games. Without this benefit, sales totaled $609 million, short of Wall Street's expectations of $640 million.

"We basically came in pretty much in line with own internal expectations," Chief Financial Officer Eric Brown said in an interview. Adjusted earnings came in above and sales slightly below the company's internal expectations.

Upcoming games such as "Spore" from "Sims" creator Will Wright, as well as "Dead Space" and "Mirror's Edge, a first-person adventure game, should drive results higher for the rest of the year.

EA stopped giving quarterly guidance last quarter, and instead updates its annual outlook four times a year. This has some analysts worried that the company's stock price will be more volatile. The company did say during a conference call with analysts it expects to post an adjusted loss for its second quarter.

But Brown said the company wants to emphasize its long-term plans to become more profitable, especially because if a big game is released during a certain quarter and no similar launch happens in the same period the next year, comparisons can be difficult.

For the fiscal year ending next March, EA forecast adjusted earnings in the range of $1.30 to $1.70 per share. Analysts were predicting profit of $1.59 a share.

Excluding the recognition of deferred revenue for certain online games, the company expects fiscal 2009 sales of $5 billion to $5.3 billion. Analysts' estimates had been right in the middle of that range, at $5.15 billion.

The company spent $356 million on research and development during the quarter, up 42 percent form a year earlier. Marketing and sales costs jumped 56 percent to $128 million.

EA's business is growing despite a choppy economy, which the video game industry has weathered so far this year, with retail sales at historic highs. That's partly because games are widening their appeal to the mass market audience — and also because, compared with travel, for example, video games are a relatively cheap form of entertainment, not subject to swings in fuel prices.

EA now expects the interactive entertainment industry to grow by 20 percent or more this year, up from its prior forecast of a 15 percent to 20 percent revenue growth. The company also expects to reap $1 billion more in adjusted revenue — that is, excluding the deferred revenue benefit — in the current fiscal year.

The company did not give an update on the status of its $2 billion hostile bid for smaller rival Take-Two Interactive Software Inc., the publisher of the popular "Grand Theft Auto" series. Take-Two has repeatedly rejected the offer as too low.

Shares fell $1.68, or 3.5 percent, to $45.72 in after-hours electronic trading. The stock had closed up $1.35, or 2.9 percent, at $47.40.

(Agencies)