Electronic Arts Gains After Forecast Tops Estimates
Electronic Arts Inc. (EA) (EA), the No. 2 U.S. video-game maker, rose the most in 13 years after forecasting annual profit that exceeded analysts’ estimates, a result of cost cutting.
Electronic Arts soared 17 percent to $21.56 at the close in in New York, after delivering its forecast with fourth-quarter results yesterday. It was the biggest jump since December 2000. The stock has advanced 48 percent this year, while the Standard & Poor’s 500 Index has gained 14 percent.
The rise suggests investor optimism for Electronic Arts, which missed financial targets last year and ousted its chief executive officer in March as players shifted to online and mobile games. Electronic Arts is cutting jobs and reducing expenses to cushion against a potentially rocky transition to new consoles, said Chief Financial Officer Blake Jorgensen.
“We expect some continued softness in the packaged-goods business,” Jorgensen said in an interview. “We’re still in a console transition phase.”
The company’s “renewed focus on cost control” as it enters a console transition cycle leaves it poised to benefit in coming months, Arvind Bhatia, an analyst with Sterne Agee & Leach Inc., wrote in a research note today. Bhatia, who has a buy rating on the stock, raised his price target on Electronic Arts’ shares to $25 from $22.
Fourth-quarter profit, excluding some items, was 55 cents a share, Electronic Arts said yesterday in a statement, missing the 57-cent average estimate. Net income fell 19 percent to $323 million, or $1.05 a share, from $400 million, or $1.20, a year earlier.
Sales, excluding changes in deferred revenue, rose 6.4 percent to $1.04 billion in the period ended March 31, beating the $1.03 billion estimate.
The search to replace CEO John Riccitiello is continuing, Jorgensen said. Riccitiello resigned when the company lowered its outlook the most recent time, in March.
Like other game makers, Electronic Arts has reduced the number of packaged titles it makes for consoles to devote more resources to the Web. As users gravitate to mobile and online games, sales of $60 console games have declined.
Digital revenue rose 8.1 percent to $453 million in the fourth quarter, helped by“SimCity,” Electronic Arts said. The increasing reliance on online delivery will help lower the company’s tax rate and could contribute 5 cents a share to fiscal 2014 profit, Jorgensen said.
The industry is anticipating demand for games will be spurred by a new PlayStation from Sony Corp. (SNE), arriving in time for the holidays, and the next Xbox from Microsoft Corp. (MSFT) (MSFT), which has scheduled a May 21 announcement.
Electronic Arts is also moving to regularly update titles such as “FIFA” soccer and “Battlefield” with new material. Yesterday, the company announced a multiyear agreement with Walt Disney Co. (DIS) to create games based on “Star Wars” characters, after Disney said it would stop making them itself.
The company won’t need to hire more people to work on the “Star Wars” games, Jorgensen said. It plans 11 major packaged titles this year.
In the current first quarter, Electronic Arts said the adjusted loss will be 62 cents a share, on adjusted revenue of $450 million. Analysts projected an adjusted loss of 37 cents on sales of $534.8 million.
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