Video-game publisher Electronic Arts Inc. (ERTS) said Monday after the markets closed that its second quarter loss widened from last year, as revenue dropped mainly because of revenue deferral related to certain online-enabled packaged goods games and digital content. The company's non-GAAP earnings per share for the quarter also came in below analysts' expectations. Additionally, the company said it will close several facilities and cut about 1500 jobs as part of a plan that will reduce annual costs by at least $100 million a year.
The Redwood City, California-based company reported a GAAP net loss for the second quarter of $391 million or $1.21 per share, compared to a GAAP net loss of $310 million or $0.97 per share for the year-ago quarter.
Excluding the impact of the change in deferred revenue and other items, non-GAAP net income for the second quarter was $19 million or $0.06 per share, compared to a non-GAAP net loss of $20 million or $0.06 per share in the prior year quarter.
On average, 26 analysts polled by Thomson Reuters expected the company to earn $0.07 per share for the second quarter. Analysts' estimates typically exclude special items.
GAAP net revenue for the second quarter, which includes the impact of deferred revenue adjustments, fell 12% to $788 million from $894 million in the year-ago quarter.
EA had a net revenue deferral of $359 million in the second quarter related to certain online-enabled packaged goods games and digital content, as compared to $232 million in the second quarter of last year.
Non-GAAP net revenue for the quarter increased 2% to $1.15 billion from $1.13 billion a year earlier. Twenty-five analysts had a consensus revenue estimate of $1.13 billion for the second quarter.
The company said second quarter sales were driven by the launches of FIFA 10, Madden NFL 10, The Beatles: Rock Band, Need for Speed SHIFT and NCAA Football 10.
"EA is performing well, with quality, sales and segment share up so far this year," said John Riccitiello, Chief Executive Officer. "We are making tough calls to cut cost in targeted areas and investing more in our biggest games and digital businesses."
EA was the no. 1 publisher in North America and Europe fiscal year to date, with 21% segment share - up four points. The company had had four of the top-ten games in both North America and Europe.
EA said it will close several facilities and cut about 1500 jobs as part of a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities.
The actions, the majority of which will be completed by March 31, 2010, will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million, the company said.
Electronic Arts had said in February that it would reduce workforce by about 1,100 people, close 12 facilities, narrow its product portfolio and cut other variable costs.
Additionally, EA said Monday that it has acquired social games company Playfish Ltd. for about $275 million in cash and about $25 million in equity retention arrangements. The sellers are also entitled to up to an additional $100 million in milestone payments.
For the first six months of its fiscal year, the company reported a GAAP net loss of $625 million or $1.93 per share, compared to a GAAP net loss of $405 million or $1.27 per share for the same period last year.
Non-GAAP net income for the first-half was $13 million or $0.04 per share, compared to non-GAAP net loss of $0.49 per share in the prior year period.
GAAP revenue for the first-half fell to $1.43 billion from $1.70 billion in the corresponding year-ago period.
Looking forward, the company said it now expects GAAP net revenue of $3.6 billion to $3.9 billion and non-GAAP net revenue of about $4.2 billion to $4.4 billion for the fiscal year 2010. Previously, the company expected GAAP net revenue of $3.7 billion to $3.85 billion and non-GAAP net revenue of about $4.3 billion for the fiscal year 2010.
The company said it now expects fiscal 2010 GAAP loss to be $1.20 to $2.05 per share, compared to its prior guidance of a loss of $0.85 to $1.35 per share.
The company also said it now expects fiscal 2010 non-GAAP diluted earnings to be between $0.70 and $1.00 per share, compared to its prior guidance of about $1.00 per share. EA expects to be profitable in both third quarter and fourth quarter.
Analysts currently expect the company to earn $0.89 per share on revenue of $4.26 billion for the fiscal year 2010.
The video game industry is becoming highly competitive, and companies are trying to own as much franchises as possible either through acquisition or tie ups. The economic crisis, which caused a sharp pull back in consumer spending, has put further pressure on video game publishers.
Activision Blizzard Inc. (ATVI), the world's largest video-game publisher, last week reported a profit for the third quarter, benefited mainly by strong response to Activision Publishing's Guitar Hero 5, Marvel: Ultimate Alliance 2, and the Guitar Hero and Call of Duty franchises, as well as Blizzard Entertainment's World of Warcraft. Earnings per share for the quarter came in-line with the analysts' expectations, while revenues fell short. Looking ahead, the company reaffirmed its outlook for calendar year 2009.
In September, Take-Two Interactive Software, Inc. reported a third quarter loss, as revenue dropped 68% from last year when it benefited from the post-launch performance of its blockbuster title Grand Theft Auto IV. However, the company's quarterly loss per share, excluding items, came in better than analysts expected as did its quarterly revenue. At the same time, the company lowered the top end of its revenue and earnings forecast ranges for the fourth quarter.
Take-Two was embroiled in a bitter takeover battle with larger rival EA last year. EA finally dropped its $2 billion offer for Take-Two in September, seven months after pursuing the publisher of the hit "Grand Theft Auto" game series.
EA shares, which have traded in a range of $14.24 to $23.95 over the past year, closed Monday's regular trading session at $19.53, up 53 cents or 2.79%. The stock is currently gaining 10 cents in after hours trading.
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