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Electronic Arts Shoots Higher

Quarterly revenue gained 16% year-over-year and the company hiked its outlook, sparking a rally in the shares

Electronic Arts (ERTS) has suffered recently from setbacks such as delayed games, higher licensing costs, and disappointing sales. But shares surged 12% on Nov. 3, after the video game-maker said next year will turn out better than initially thought.

The Redwood City, Calif.-based company reported on Nov. 2 that net income was $22 million, or 7 cents per diluted share, during the fiscal second quarter ended Sept. 30. That's down sharply from the company's net income of $51 million, or 16 cents per share, in the prior year.

The company has fought to keep growing. It partnered with Apple (AAPL) to bring its games to the iPod, bought the European game developer Phenomic Games, and closed its acquisition of the multiplayer online game maker Mythic Entertainment. With help from strong sales of products like Madden NFL 07, NCAA Football 07, and FIFA 07, Electronic Arts' revenue surged to $784 million during the recent quarter, from $675 million during the same period in 2005.

"While our industry remains in the midst of transition, the landscape looks strong enough that we are able to increase our guidance range for the year," said Warren Jenson, Chief Financial and Administrative Officer, in a press release.

During the entire fiscal year ending Mar. 31, 2007, Jenson expects diluted earnings per share to be between breakeven and 15 cents, on revenue between $2.95 billion and $3.125 billion. Earlier he had prepared the market for a loss of 30 cents or at best breakeven, on $2.8 billion to $3.0 billion revenue.

After the news, the stock gained 11.8% to $59.24 on the Nasdaq.

Wedbush Morgan analyst Michael Pachter thinks growth trends in the industry will continue. He says Electronic Arts can deliver better than it's forecasting. He reiterated a strong buy on the stock and hiked his earnings per share estimate for fiscal year 2007 to 71 cents from 66 cents.

Electronic Arts has more than 30 next-generation games in development and plans to release eight game titles within the quarter.

Standard & Poor's Equity Research analyst Clyde Montevirgen says the game release schedule should improve Electronic Arts' business, but also warns that the company's near-term sales will be limited for current game titles. After raising an earnings per share estimate for fiscal year 2007, the analyst's 12-month target price on the stock moves up by $5 to $59, according to a research note. (Standard & Poor's, like, is owned by The McGraw-Hill Companies.)

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