Electronic Arts Inc. (EA), trading near lows not seen since March 1999, climbed as much as 7.8 percent after reporting a smaller quarterly loss than analysts expected and saying it would buy back as much as $500 million in stock.
The second-largest U.S. video-game maker, based in Redwood City, California, rose 2.1 percent to $11.25 at 1:28 p.m. New York time, after reaching $11.88. Electronic Arts, publisher of the “Madden NFL” and “Battlefield” titles, had retreated 47 percent this year through yesterday as the company grappled with a consumer shift toward online play.
Chief Executive Officer John Riccitiello is adding online games to reduce the company’s reliance on sales through retail stores, which have fallen as consumers boost Internet play. The company yesterday announced an agreement with Tokyo-based Nexon Co. (3659) to distribute “EA Sports FIFA Online 3” in South Korea, and named former Yahoo Inc. (YHOO) executive Blake Jorgensen chief financial officer, citing his e-commerce experience.
“We’re pretty comfortable with the quarter and saw strength in the digital growth strategy,” interim Chief Financial Officer Ken Barker, who will return to his role as chief accounting officer, said in an interview yesterday. “We’re seeing the benefit of having a 365-day relationship with consumers.”
In the first quarter, the company lost 41 cents a share, excluding some items, less than the 42-cent loss estimated by analysts. Sales, excluding changes in deferred revenue, fell 6.3 percent to $491 million in the period ended June 30, Electronics Arts said in a statement. Analysts projected $501.6 million, the average of 19 estimates compiled by Bloomberg.
Adjusted profit excludes costs for stock-based compensation, acquisitions and restructuring. Net income in the first quarter fell 9 percent to $201 million, the company said.
Electronic Arts released the online game “Battlefield 3 Premium” in the quarter and sold more than 1.3 million subscriptions. Because of accounting rules, the company can’t begin recording sales until its fourth quarter, Barker said.
The company would have exceeded analysts’ average estimates for sales by $26 million, or 5 percent, if it had been able to log the revenue in the quarter, Arvind Bhatia, an analyst with Sterne Agree & Co., said in a research note today.
“It appears EA’s diversified model is helping it in the ongoing industry transition,” said Bhatia, who recommends investors buy the shares.
Sales also suffered after “Secret World,” another online game, was delayed from the first quarter to the second, according to Barker.
The company released no packaged titles in the first quarter. Digital sales rose 37 percent to $78 million, after the company bought PopCap games one year ago, the publisher of “Plants vs. Zombies” and “Bejeweled” on Facebook.
Electronic Arts has struggled to create an online hit that can challenge larger rival Activision Blizzard Inc. (ATVI)’s “World of Warcraft.”
Doug Creutz, an analyst with Cowen & Co. LLC, lowered his estimate for subscribers to the massive multiplayer online game “Star Wars: The Old Republic” by half, to 500,000 by year-end from 1 million, in a July 30 research note.
“Last year we announced that the break-even point was roughly 500,000 subscribers,” Frank D. Gibeau, president of EA Labels, said on the conference call. “While we are well above that today, that is not good enough.”
In November, the company will move to a two-tiered pricing model for the game. People who pay $14.99 monthly will get full access to content and advanced features, while others will be allowed to play for free and purchase upgrades through in-game currency, the company said.
In the current second quarter, Electronic Arts said it expects adjusted revenue of $1.05 billion to $1.1 billion, compared with analyts’s estimates of $1.08 billion. The company expects a profit of 7 cents to 12 cents a share, excluding items, compared with analysts’ estimate of 13 cents.
For the full year, the company said profit will be $1.05 to $1.20 a share. Analysts are projecting a profit of $1.08. Adjusted sales will total $4.1 billion to $4.25 billion, below the company’s prior forecast of $4.3 billion.
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