Thursday, October 30, 2008

Electronic Arts Q2 Earnings

Electronic Arts announced earnings today. Here's an excerpt from the Gamasutra article:
Electronic Arts' fiscal second quarter saw revenues rise -- but losses widened considerably, and wary of weakening retail, the company is laying off employees.

Madden NFL 09, Spore, Mercenaries 2, NCAA Football 09, Tiger Woods PGA Tour 09 and Warhammer Online's strong launches, alongside continued strength for Rock Band, drove EA's overall revenues to $864 million, a 33% boost over last year's $650 million -- but losses reached $310 million, as compared to $195 million last year.

The major publisher's cost reduction plan includes a reduction of its work force of about 6 percent, approximately 600 employees. Through the layoffs, the publisher hopes to gain pre-tax savings of $50 million.

"Considering the slow down at retail we’ve seen in October, we are cautious in the short term," said EA CEO John Riccitiello in the company's results statement.

In after-hours trading, their stock was at $23.74. At the end of last year, it was trading at $60.00.

I think the size of the loss is shocking, particularly considering that their revenue grew 33% from last year. Increase revenue by 214M, but increase losses by 115M?

Looking at the actual numbers in their earnings release, I found a few clues.
--Total Operating Expenses grew by 182M (35%)
--Marketing and Sales grew from 164M to 197M
--Research and Development grew from 259M to 372M (43%)
--Certain Abandoned Acquisition-related Costs were 21M

A few notes, and not necessarily in order. Boy, that failed Take-Two acquisition was quite a hickey, huh? Twenty-one million of them, to be exact.

Marketing is almost 200M a quarter now. And they still have one A.I. programmer on Madden (I'm kidding, or am I?).

Research and Development grew substantially, but I don't what they include in that category. Development costs for all games? New tech research? I don't have a specific answer.

Buried in the numbers was one particularly interesting category--"Proceeds from maturities and sales of short-term investments," along with "purchase of short-term investments." Proceeds - Purchase was 220M, compared to 438M last year.


I'm not sure I'm getting this straight, but here's what I see. Last year, in a 650M revenue quarter, short-term investments provided 438M in net cash? That seems positively enormous.

So what were they buying? I don't know, but net cash from that category going down over 200M from last year is a giant change. Giant. If they got burned on something, it would be very interesting to know where the fire came from.

One last note. During the quarter, 8 games (6 EA Sports games, Facebreaker, and Mercenaries 2) were released for the 360 and the PS3. In revenue per title, the 360 versions provided 28M in revenue, while the PS3 versions were just over 12M.

For Sony, that's pretty dismal.

Oh, one more last note. John Riccitiello said they saw a "slowdown at retail in October."

Video games. Not recession proof.

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