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EA Posts Profit, Raises Outlook

The video game publisher's revenue rises 89%, beating expectations, on strong sales of 'Madden' and other PS2 titles.

October 25, 2002|Alex Pham | Times Staff Writer

Bolstered by blockbuster franchises and growing consumer appetite for video games, Electronic Arts Inc. posted record fiscal second-quarter profit and sales that topped Wall Street's expectations.

With a growing number of American households owning new game consoles, the nation's largest game publisher posted net income of $50 million, or 34 cents a share, contrasted with a net loss of $33 million, or 24 cents a share, a year earlier. Analysts surveyed by Thomson First Call expected an average of 17 cents a share.

Revenue -- driven by stronger-than-expected sales of "Madden Football 2003," "Medal of Honor Frontline" and "The Sims" -- was $453 million, up 89% from a year ago.

"EA is a juggernaut," said Michael Pachter, director of research at Wedbush Morgan Securities in Los Angeles.

EA also projected record sales of $1.1 billion to $1.2 billion next quarter, based on expected strength of its holiday titles, including "Harry Potter and the Chamber of Secrets," "The Sims Online," "Lord of the Rings: The Two Towers" and "James Bond 007 Nightfire."

For its fiscal year ending March 31, the Redwood City, Calif., company projected sales of $2.3 billion to $2.4 billion, up 33% to 39% from last fiscal year.

The company is benefiting from a bet made several years ago to develop its key titles for Sony Corp.'s popular PlayStation 2 game console, analysts say.

Today, the PS2 has outsold its competitors nearly 4 to 1.

"They're riding the PS2 momentum and are set up for a great holiday quarter," said P.J. McNealy, analyst at Gartner Inc.

The company presented a bullish outlook for the game industry.

EA President John Riccitiello said in an interview that the company expects overall industry sales of video and computer games to grow an average of 20% next year.

Specifically, the market for PS2 games would grow by 25% to 30% to more than $3 billion in North America, he said.

EA estimated that the market for games on Microsoft Corp.'s Xbox and Nintendo Co.'s GameCube would grow 20% to 25% next year, while PC games would grow 5% to 8% in 2003.

The estimates contradict a more conservative projection offered earlier this week by THQ Inc.'s chief executive, Brian Farrell, who said the game market would grow 10% to 15% next year.

Farrell's comment triggered a sell-off Tuesday in game stocks. EA shares dropped 7.7%, THQ's shares fell 36% and Activision Inc. lost 16.3% that day.

On Thursday, EA fell $2.10 to $65.85 on Nasdaq but rose to $68.20 in after-hours trading. EA announced its results after the markets closed.

Although many analysts continue to believe in double-digit industry growth, this holiday presents brutal competition for retail shelf space.

With hundreds of new games coming out this season, cautious retailers are limiting how much exposure each game receives, analysts say.

"Clearly, retailers will favor consoles that have a bigger" consumer base, McNealy said. "That means GameCube and Xbox will likely be struggling to rise above the bottom shelf at retail."

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