Attendees at the Electronic Entertainment Expo visit the Electronic Arts booth on the first day of E3 in Los Angeles, California June 5, 2012. — Reuters Photo
SAN FRANCISCO, Tue May 7, 2013 - Electronic Arts Inc forecast fiscal 2014 earnings above Wall Street's expectations as cost cuts take hold and higher-margin digital sales accelerate, lifting the video game publisher's stock 8 percent.
Electronic Arts, which like the rest of the industry is struggling as players migrate to more casual games such as "Angry Birds" on mobile devices, estimated fiscal 2014 profit, excluding certain items, of $1.20 a share, beating an average estimate of $1.10.
EA has been cutting staff and reorganizing studios in recent months to embrace new game platforms, cut costs and adapt to tougher market conditions. The publisher is preparing a new slate of games - including the latest installment of its "Battlefield" shooter game franchise - partly to take advantage of next-generation video game consoles due later this year.
Digital revenue - from mobile games, online offerings and other newer sales channels - rose 45 percent year-over-year to $618 million, larger than EA's packaged goods business in the fourth quarter ended on March 31.
EA shares rose to $19.88 in after-hours trading on Tuesday after closing at $18.41 on Nasdaq.
"We've cut operating costs, sharpened our product focus, and made strategic investments in next-generation consoles, mobile, and PCs," EA Executive Chairman Larry Probst told analysts on an earnings call.
Consumers have held back from buying hardware and software as they await new versions of Sony Corp's PlayStation and Microsoft Corp's Xbox expected later this year.
"Their focus on margin expansion is impressive but they're going to have to continue to deliver on that," Sterne Agee analyst Arvind Bhatia said. "But so far, so good."
For fiscal 2014, the video game maker forecast revenue of $4 billion, in line with Wall Street's expectations, according to Thomson-Reuters I/B/E/S.
"STAR WARS" IN THE MAKING
Weakness in the packaged games market dented revenue, but EA recognized $120 million of deferred payments from its "Battlefield Premium" service in the fourth quarter, Chief Financial Officer Blake Jorgensen said in an interview.
For the latest quarter, total revenue declined to $1.2 billion from $1.37 billion a year ago. Adjusted revenue rose 6.4 percent to $1.04 billion over the same period, barely beating analysts' average estimate of $1.03 billion according to Thomson Reuters I/B/E/S.
Net income fell to $323 million, or $1.05 per share, from $400 million, or $1.20 per share, a year ago.
John Riccitiello stepped down as chief executive on March 30, after taking responsibility for missed operational targets.
Former CEO and Chairman Probst has been appointed executive chairman as the company begins its search for the next CEO.
There's "no new news" on the search for EA's next CEO, Jorgensen said. "The search continues."
EA's big 2014 release is "Battlefield 4," the new installment from its hugely popular first-person shooter franchise that is expected to release this fall.
"It would have been tougher for them this year had it not been for 'Battlefield 4.' I think that accounts for most of the growth and in the absence of that they would have had a flat to down year," Bhatia said.
EA management on the earnings call cited 11 titles in the company's 2014 lineup. These include sports game franchises such as "Madden" and "FIFA," city-building simulation game "Sims 4" for personal computers and "Plants vs. Zombies 2" from its PopCap mobile game studio.
On Monday, Electronic Arts sealed a multi-year licensing deal with Walt Disney Co, under which the video game publisher will develop games for mobile devices, PCs and consoles based on the "Star Wars" movies.
"Development is at least a year plus in timing so you won't see anything in fiscal '14," Jorgensen said.