Video-game maker Electronic Arts Inc. (ERTS) is set to announce its third-quarter results after market close on Monday. The Redwood City, California-based company expects to a record a loss in the quarter. In the year-ago third quarter, the company reported a net loss of $641 million on revenues of $1.65 billion.
Although Electronic Arts is ahead of its competitors in the video game business, it has been floating in a pool of losses for a while, hurt by reasons including revenue deferral related to certain online-enabled packaged goods games and digital content.
Electronic Arts on January 11 said it now expects a loss in the range of $0.24 to $0.32 per share and non-GAAP earnings in the range of $0.29 to $0.33 per share for the third quarter. The non-GAAP earnings forecast excludes change in deferred net revenue, stock-based compensation, restructuring charges and other expenses.
Revenues for the quarter are expected to be between $1.227 billion and $1.247 billion. On a non-GAAP basis, revenues are expected to be $1.33 billion to $1.35 billion.
On average, analysts polled by Thomson Reuters expect a profit of $0.31 per share for the quarter on revenues of $1.34 billion. Analysts' forecast typically excludes one-time items.
Electronic Arts earlier cautioned that its fiscal year 2010 earnings would be below the financial guidance provided earlier. The company also cited weakness for EA and the overall packaged goods sector in Europe during December, and a product mix shift to lower margin distribution products in the December quarter, primarily in North America.
The company has acquired Playfish, a creator of social network games, for about $275 million in cash and $25 million in equity retention arrangements. The sellers of Playfish are also entitled to additional variable cash consideration, up to a maximum of US$100 million, contingent upon the achievement of certain performance milestones through December 31, 2011.
Excluding the impact of tax-related charges that may arise in connection with the Playfish integration, the company now expects fiscal 2010 loss in the range of $1.94 - $2.24 per share, compared to its prior loss estimate of $1.20 to $2.05 per share. Non-GAAP earnings for 2010 are expected to be $0.40 to $0.55 per share, down from $0.70 to $1.00 per share projected earlier.
The company's net revenue for the fiscal year is now expected to be between $3.6 billion and $3.675 billion, compared to its prior range of $3.6 billion to $3.9 billion. Non-GAAP net revenue is projected to be $4.125 billion to $4.2 billion, down from the prior guidance range of $4.2 billion - $4.4 billion. Analysts expect the company to earn $0.48 per share for the year on revenues of $4.15 billion.
Electronic Arts has come up with several countermeasures as part of its effort to pitch the company out of the lean patch, including the closure of several facilities and to cut about 1500 jobs to narrow its product portfolio and provide greater focus on titles with higher margin opportunities. These actions, the majority of which will be completed by March 31, 2010, and is expected to result in annual cost savings of at least $100 million with restructuring charges of $130 million to $150 million.
For the preceding second quarter, Electronic Arts' loss widened from last year, as revenue dropped mainly because of revenue deferral related to certain online-enabled packaged goods games and digital content. GAAP net loss for the second quarter was $391 million or $1.21 per share, compared to a GAAP net loss of $310 million or $0.97 per share in the year-ago quarter. GAAP net revenue fell 12% to $788 million from $894 million in the prior-year second quarter.
Among others in the sector, Activision Blizzard, Inc. (ATVI) is set to reveal its fourth-quarter results on February 10. Wall Street analysts project quarterly earnings of $0.44 per share on revenues of $2.23 billion.
For the fourth quarter, Activision Blizzard anticipates a GAAP loss of $0.04 per share, and non-GAAP earnings of $0.43 per share. GAAP net revenues are estimated to be $1.33 billion, and non-GAAP net revenues are expected to be $2.22 billion.
Another peer Take-Two Interactive Software Inc. (TTWO) is expected to post a loss of $0.50 per share for the first quarter of fiscal 2010 on revenues of $150.74 million.
In December 2009, Take-Two signed a definitive asset purchase agreement to sell its Jack of All Games distribution business to SYNNEX Corp. (SNX), a business process services company, for about $43.25 million. At the time of the asset sale announcement, Take-Two said it sees first-quarter non-GAAP loss in a range of $0.45 - $0.55 per share, compared to its prior forecast range of a loss of $0.40 to $0.50 per share. The company's revenues are expected to be between $90 million and $140 million, lower than $210 million and $260 million projected earlier.
ERTS is trading at $17.64, up $0.38, on a volume of 3.71 million shares. For the 52-week period, the company's shares traded in a range of $14.75 - $23.76.
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