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EA Performs Below Expectations In Third Quarter 2014, Lowers Guidance

Electronic Arts is coming off a tough third quarter, during which the company experienced lower increases in digital sales, but diminished retail revenue. Retail was down year-over-year from $568 million in December 2012 to $370 million in December 2013.

Digital revenue didn’t rise enough to cover the decrease in retail sales, growing from $321 million to $410 million. EA experienced a GAAP net loss of $308 million in comparison to a net loss at this time last year of $45 million, and lower net revenue from $922 million to $808 million year over year.

EA is lowering its revenue projections for the current fiscal year (ending March 31, 2014) from $3.55 billion to $3.52 billion. The publisher cites softness in the Xbox 360 and PlayStation 3 segment of the market. It has however increased earnings per share due to reduced expenses yielding higher profits.

EA is bolstering non-GAAP revenue due to a change in how it recognizes revenue, extending that spread over an additional quarter. The non-GAAP accounting selectively excludes the $40 million NCAA settlement and tax expenses among other items. The total exclusions amount to $385 million.

EA’s earnings release also indicates significant growth in Ultimate Team revenues, touting a non-audited increase of 60 percent over this time last year. EA also boasts 35 percent of next-generation software sales, inclusive of Madden NFL 25, FIFA 14, Battlefield 4, and Need for Speed: Rivals on Xbox One and PlayStation 4. This makes EA the top publisher on the new console platforms.

EA will be holding a conference call to offer additional detail on its performance this afternoon. Stay tuned for more information. For additional context, you can read up on EA's second quarter performance.

[Source: EA]

 

Our Take
Despite the qualitative assessments leading the earnings release, EA underperformed on its non-GAAP revenue projections. I’m eager to hear from EA respond to investor inquiries about the ongoing troubles with Battlefield 4. I also expect that we’ll be hearing Titanfall’s name come up a number of times as a way to orient investors to the future.

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