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Electronic Arts weak forecast
By Martin | February 9, 2010
In its fiscal third quarter earnings results EA gave investors a very underwhelming forecast for its fiscal fourth quarter ending March 31. The company said it expects non-GAAP net revenue in the range of $800 million to $850 million, just below the consensus estimate of $851 million, per Thomson Reuters.
But even more disappointing is the company’s non-GAAP earnings forecast of 2 cents to 6 cents a share, compared with the consensus estimate for non-GAAP earnings of 13 cents a share.
Fiscal Third Quarter Results (comparisons are to the quarter ended December 31, 2008)
GAAP net revenue for the quarter, which includes the impact of deferred net revenue adjustments, was $1.243 billion as compared with $1.654 billion for the prior year. During the quarter, EA had a net revenue deferral of $103 million related to certain online-enabled packaged goods and digital content as compared with $88 million in the third quarter of the prior year. This $103 million deferral will be recognized in future quarters.
Non-GAAP net revenue for the quarter was $1.346 billion, down 23 percent as compared with $1.742 billion for the prior year. The decline is due to several factors, including fewer titles this holiday quarter versus the 2008 holiday quarter, and a weak overall packaged goods sector in Europe. Sales were driven by the launches of Dragon Age(TM): Origins, Left 4 Dead 2, and NBA Live, and catalog sales of FIFA 10, Madden NFL 10, and The Sims(TM) 3.
GAAP net loss for the quarter, including the impact of deferred net revenue, was $82 million as compared with a net loss of $641 million for the prior year. GAAP diluted loss per share was $0.25 as compared with GAAP diluted loss per share of $2.00 for the prior year.
Non-GAAP net income was $109 million as compared with a non-GAAP net income of $179 million a year ago. Non-GAAP diluted earnings per share was $0.33 as compared with a non-GAAP diluted earnings per share of $0.56 for the prior year.
“EA is growing share in our packaged goods business and our digital businesses continue to grow rapidly,” said John Riccitiello, Chief Executive Officer. “Mass Effect 2 is the first blockbuster of 2010 and we are looking forward to the launch of Dante’s Inferno and Battlefield Bad Company 2.”
“We are expecting an increase in FY11 full year non-GAAP earnings per share on the basis of strong cost controls and growth in our digital businesses,” said Eric Brown, Chief Financial Officer.
Fourth Quarter Fiscal Year 2010 Expectations – Ending March 31, 2010
•GAAP net revenue is expected to be approximately $925 million to $1.0 billion.
•Non-GAAP net revenue is expected to be approximately $800 to $850 million.
•The Company expects GAAP diluted earnings per share to be approximately $0.05 to $0.23.
•Non-GAAP diluted earnings per share is expected to be approximately $0.02 to $0.06.
•For purposes of calculating fourth quarter fiscal year 2010 earnings per share, the Company estimates a share count of 328 million to compute both GAAP and non-GAAP earnings per share.
•Expected non-GAAP net income excludes the following items from expected GAAP net income:
* Non-GAAP net revenue is expected to be approximately $250 million lower due to the impact of the change in deferred net revenue (packaged goods and digital content);
* Approximately $50 million of estimated stock-based compensation;
* Approximately $15-20 million of amortization of intangible assets;
* Approximately $5 million of restructuring charges; and
* $50 to $60 million in the difference between the Company’s GAAP and non-GAAP tax expenses.
Fiscal Year 2011 Expectations – Ending March 31, 2011
•GAAP net revenue is expected to be approximately $3.45 to $3.70 billion.
•Non-GAAP net revenue is expected to be approximately $3.65 to $3.90 billion.
•GAAP diluted loss per share is expected to be approximately ($0.60) to ($0.90).
•Non-GAAP diluted earnings per share is expected to be approximately $0.50 to $0.70.
•For purposes of calculating fiscal year 2011 GAAP loss per share, the Company estimates a share count of 328 million and for non-GAAP earnings per share, the Company estimates a share count of 330 million.
•Expected non-GAAP net income excludes the following items from expected GAAP net income:
* Non-GAAP net revenue is expected to be approximately $200 million higher due to the impact of the change in deferred net revenue (packaged goods and digital content);
* Approximately $195 million of estimated stock-based compensation;
* Approximately $75 million of amortization of intangible assets;
* $10 to $15 million of restructuring charges; and
* ($24) to ($54) million in the difference between the Company’s GAAP and non-GAAP tax expenses.
•The fiscal year 2011 launch schedule is expected to be more consistent with years prior to fiscal year 2010, with non-GAAP revenue to be allocated as follows during the fiscal year:
* Q1: approximately 13%
* Q2: approximately 25%
* Q3: approximately 40% and
* Q4: approximately 20% to 25%
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