The Wall Street Journal-20080201-Earnings Digest- EA Swings to Loss- Lowers Forecast

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Earnings Digest: EA Swings to Loss, Lowers Forecast

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Electronic Arts Inc. swung to a net loss for its fiscal third quarter because of an accounting change, as revenue rose 17% on strong holiday sales of the videogame publisher's sports, racing and other titles.

But the Redwood City, Calif., company said it will delay the release of two coming shooting games, causing it to trim profit forecasts for its current quarter. EA's shares fell 3% in after-hours trading following the news.

In a conference call with investors and analysts, EA Chief Executive John Riccitiello called the results for the quarter ended Dec. 31 "solid but mixed." The reason: Despite a number of top-selling holiday games, EA's portfolio of games was thin on new hit titles that it created on its own, without a partner. Those titles are typically among the most profitable for game makers. "We did not have any internally developed breakaway titles," Mr. Riccitiello said.

Some of EA's best-selling games over the holidays were titles it distributed or published on behalf of other game makers, including Half Life 2 Orange Box and Crysis. Another big success was Rock Band, a music game made by Viacom Inc.'s MTV, of which 1.5 million units were sold over the holidays. Other big sellers included the racing game Need for Speed Pro Street and the soccer title FIFA 08, both games created by EA.

Mr. Riccitiello has made raising the quality of games a priority since he took the top job at EA in April, but he said there is more work to do. He said none of the company's internally developed games had a rating of 90 or above on a scale of 100 on Metacritic, a popular game-ratings Web site.

Concerns over game quality are one reason Mr. Riccitiello said EA decided to delay the release of two titles, Battlefield: Bad Company and Mercenaries 2, until the fiscal year starting in April from the fiscal fourth quarter ending March 31. EA executives said the decision will give the company more time to polish the game.

As a result of the delay, EA said it now expects to post a loss for the fiscal year ending March 31 of $1.48 to $1.67 a share, wider than its prior projected loss of 91 cents to $1.60 a share. The company also narrowed the range of its revenue guidance for the year to between $3.46 billion and $3.59 billion, compared with a prior forecast of $3.35 billion to $3.65 billion.

EA shares traded at 4 p.m. at $47.37, up 14 cents, in composite Nasdaq Stock Market trading. In after-hours trading following the announcement, the stock slid to $45.95.

EA's third-quarter profit drop reflected the company's shift of $231 million in sales into deferred revenue to comply with accounting rules for products that include a service as part of their offerings. Many EA games now offer additional services, such as multiplayer capabilities, over the Internet.

Without that accounting change and other items, EA said it would have earned $290 million in the holiday quarter compared with $201 million in the year-earlier period.

Mr. Riccitiello said EA's slate of titles for the coming year had the potential for a number of standout new games, including a horror game called Deadspace and Spore, an eagerly anticipated personal- computer game from Will Wright, the game designer behind the Sims. Mr. Riccitiello said he was "very, very bullish" on the prospects for Spore.