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Electronic Arts shares plunge 8%

The California video-game company's third-quarter results and lowered earnings projections show effects of the global downturn.

February 09, 2010|By Alex Pham

Shares of Electronic Arts Inc. plunged more than 8% in after-hours trading Monday following the video game company's release of its third-quarter results and lowering of earnings projections as the game industry continues to struggle with the economic downturn.

The Redwood City, Calif., publisher of Madden NFL, Mass Effect and the Sims titles posted a 25% revenue drop to $1.2 billion in the quarter that ended Dec. 31, down from $1.7 billion a year earlier. Its net loss for the quarter narrowed to $82 million, or 25 cents a share, compared with a $654-million loss, or $2 a share, a year earlier.

EA's stock, which gained 23 cents to $17.49 before the earnings release, retreated $1.46, or 8.4% in after-hours trading.

"They misjudged the extent of the economic downturn, as did the rest of us," said Michael Pachter, an analyst with Wedbush Morgan Securities who attributed the drop in stock price more to its cautious financial outlook than its past results.

Eric Brown, the company's chief financial officer, warned that sales of disc-based games sold at retail stores could decline 3% this year. As a result, the company expects its per-share earnings for its fiscal year ending March 31 to land between 39 and 43 cents, down from the estimate of 40 to 55 cents that EA executives gave just four weeks ago.

While sales of shrink-wrapped game discs may be faltering, EA is betting on big growth for its digital download and online games business, which includes iPhone games sold through Apple Inc.'s App Store, as well as sales of virtual items and additional game levels on Facebook, Xbox Live, PlayStation Network and other online platforms.

EA's digital games division grew 30% in the third quarter to $152 million from a year earlier, making up roughly 11.3% of EA's total revenue.

Brown projected that the figure would grow to $750 million in the fiscal year that starts April 1 and that the division would become a $1-billion business for the company within three years.

Games distributed online can be much more profitable than disc-based games. While companies generally expect to have single-digit margins on packaged games, digital content have yielded margins of 20% on average, EA said.

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