Shares of Electronic Arts Inc. sank Thursday after the bellwether of video game sales signaled the year ahead will be challenging and expensive amid the shift to new game consoles.
Electronic Arts’ shares fell $5.95, or 11 percent, to close at $48.55 on the Nasdaq Stock Market. The stock’s weakest level of the day was $47.14, below its 52-week low of $47.45.
Stuck in an industrywide waiting game and faced with higher expenses and taxes, video game publisher Electronic Arts Inc. swung to a loss in its fiscal fourth quarter and issued an outlook well below Wall Street expectations on Wednesday.
“Expectations were falling coming into the report, and the company managed to submarine even those expectations,” said Paul-Jon McNealy, analyst at American Technology Research.
The world’s largest video game publisher said it lost $16 million, or 5 cents per share, for the three months ended March 31. In the year-ago period, the company earned $8 million, or 2 cents per share.
Revenue climbed to $641 million, up 16 percent from $553 million in the prior year.
Excluding certain items, the Redwood City, Calif.-based company said it would have earned $43 million, or 14 cents per share, compared to $30 million, or a 9 cents per share, a year ago. EA said the one-time charges included a repatriation tax of $375 million in foreign earnings and $59 million in acquisition costs.
On that basis, the company exceeded the expectations of 9 cents per share on revenue of $581 million from analysts polled by Thomson Financial.
For the full year, EA said it earned $236 million on revenue of $2.95 billion, compared to earnings of $504 million on revenue of $3.13 billion in the prior year.
For the current quarter ending in June, EA said it expects to lose 22 cents to 28 cents per share on revenue between $300 million and $340 million, taking into account an estimated 9 cents-per-share impact from stock option expenses, another 3 cents in amortization and 2 cents in restructuring charges. Analysts were projecting a loss of 19 cents on revenue of $412 million.
And for the current fiscal year, EA projected earnings excluding stock-based compensation and other one-time charges to be between 35 cents and 65 cents per share on revenue of $2.7 billion to $2.95 billion. That’s well below the analysts’ earnings estimate of $1.07 per share on revenue of $3.12 billion.
Sales of video games industrywide have slowed as customers have been withholding purchases and waiting to switch to next-generation models of game consoles. In 2005, stalled purchases caused video game sales to fall 5 percent to $7 billion in the United States, according to market research firm NPD Group.
For 2006, EA executives predicted that video game sales industrywide would be flat to down 5 percent.
Specifically, customers are holding out for Sony Corp.’s PlayStation 3 and Nintendo Co.’s Revolution consoles, both due later this fall.
Microsoft Corp.’s new Xbox 360, which already debuted last November, initially was in short supply but shipments are picking up now, EA officials said, and doing their part to help boost video game sales during the industry’s bruising console transition period.
“Our Xbox 360 related revenue more than offset the decline in (original) Xbox games, and that was good,” Chief Financial Officer Warren Jenson said in a telephone interview.
However, EA officials said it still plans to invest heavily in research and development as it creates new games for the as-yet untested next-generation consoles. EA executives also cited risks, ranging from potential console shipment problems to the success of the consoles themselves.
“This is a period of heightened uncertainty,” Jenson said during a conference call with analysts.