EA Announces Profits Down 31%, Following Layoffs

Video game publishing and development giant Electronic Arts has announced relatively disappointing financial results for the fiscal third quarter ended December 31, 2005. The results showed net revenue of $1.270 billion, down 11 percent as compared with $1.428 billion for the fiscal quarter ended December 31, 2004, and a still significant profit for the quarter of $259 million that was nonetheless down 31% on a $375 million profit for the prior year. The announcement came shortly after yesterday's news that the firm was cutting around 5% of its worldwide staff, estimated by independent sources at more than 300 employees in total, following a cautionary conference call in mid-December regarding the slowing hardware-transitional video game market. However, the results came in under even reduced analyst estimates, following EA's previous warning. But the company's announcement that the firm had 22 percent revenue share in North America and 23 percent revenue share in Europe, as well as four of the top 10 titles in North America and six of the top 10 titles in Europe in 2005 seems to have stayed the company's stock price somewhat. While being down over a dollar on the day to $53.58, EA's NASDAQ-traded stock rebounded up almost a dollar to $54.55 in after-market trading. Analyst predictions from earlier today seem to indicate that the market will improve significantly into 2007 and 2008, as the next-gen console installed base shoots up significantly, and EA's relative position in the market will still be extremely positive as that happens. Nonetheless, the console hardware transition period is making the company's reduced profits difficult to swallow for investors. According to the EA statement, sales were driven by Need for Speed Most Wanted, FIFA 06, Harry Potter and the Goblet of Fire, The Sims 2 and Madden NFL 06, each of which sold over two million copies in the quarter. NBA Live 06, SSX On Tour, Tiger PGA TOUR 06, From Russia with Love and Battlefield 2: Modern Combat also had respectable sales, each selling over one million copies in the quarter worldwide. "We ended 2005 in a very strong competitive position," said Larry Probst, Chairman and Chief Executive Officer. "We were number one on the PlayStation 2, the Xbox, PSP and PC in both North America and Europe. We also had a successful launch on the Xbox 360 and expect that we will be the number one publisher on this platform in 2006." "Calendar 2006 will be a year of investment ahead of revenues," said Warren Jenson, Chief Financial and Administrative Officer. "Our resources will be focused on next-generation software and the global expansion of our online and mobile businesses."