Electronic Arts Posts 2005 Results, Forecasts Q1 Loss

Author: by Nich Maragos, Simon Carless

Electronic Arts has released both its fourth quarter and overall results for fiscal year 2005, the period ending March 31st, 2005, showing both a disappointing result for its fourth quarter and forecasting a net loss for the current fiscal quarter, in a move that sent EA shares plummeting 11% to $47 in after-hours trading. The yearly revenue for EA was up 6 percent compared to fiscal year 2004, with a 2005 take of $3.129 billion over 2004's $2.957 billion, but the company's net income took a downturn. In 2005, net income was $504 million rather than 2004's $577 million, a dip of 12 percent. The overall downturn came despite some strong 2005 sales in several respects for the company. Six separate franchises sold over five million units each over multiple SKUs: The Sims, Need for Speed, Madden NFL Football, FIFA, Lord of the Rings, and Harry Potter, all did well across all platforms. The company's revenue climbed above $3 billion for the first time, and 31 of its games sold over a million copies, compared with 27 in FY 2004. The fourth quarter was particularly unfortunate for EA - in Q4 2004, EA posted $90 million in net income, but 2005's fourth quarter brought in only $8 million. In particular, a $21 million pretax charge associated with employment-related litigation, likely relevant to the multiple lawsuits regarding overtime and 'quality of life' issues dragged down results. In addition, poor performance for older EA catalog titles and R&D costs for next-generation software development may be partly responsible. Warren Jenson, EA's CFO, said that the 2006 fiscal year would be "a year of execution and investment. We have a strong title line up that allows us to make investments for long-term leadership." Jenson also notably commented in a conference call to investors: "This is a period of significant change, but it is also a period of significant opportunity." Going forward, the currently in-progress first fiscal quarter of 2006, traditionally slow, looks little better for the company - it's forecasting net revenue of between $300 and $340 million, compared with $432 million for the prior year, and a loss of 22 cents to 28 cents per share, compared to income of 8 cents at a similar time last year.