Electronic Arts Sees Decline in Profit, Revenue

Electronic Arts Inc. reported a smaller-than-expected decline in quarterly revenue and profit despite lacking a major new videogame release in the period.

The company, known for its " Star Wars" and sports game franchises, said revenue adjusted to account for factors including deferred sales of online services slid 1.6% to $682 million in the fiscal first quarter, which ended on June 30. Wall Street had expected revenue by that measure to shrink to $652.5 million, according to Thomson Reuters. Adjusted profit fell to 7 cents a share from a profit of 15 cents. Analysts had expected an adjusted loss of two cents a share.

Electronic Arts said the revenue comparison suffered because a year ago it benefited from sales of the mid-March release of "Battlefield Hardline," the latest installment in its megahit "Battlefield" franchise. In addition, the April-through-June quarter this year was a week shorter than last year, when the company also booked deferred revenue from spending inside "FIFA Online 3" by players in China—a unique situation that added $31 million to the coffers.

Shares of Electronic Arts, which moved into $70 range in mid-May and have stayed there since, was $76.78 as of 4 p.m. in New York. In after-hours trading, the stock was trading lower, at $76.03.

Electronic Arts said in the latest quarter it partially offset the tough comparison with last year by growing its digital business 6.8% to reach $568 million on an adjusted basis. "Ultimate Team," a mode for the company's sports games that lets players create fantasy teams and compete with others, was a leading driver, Chief Financial Officer Blake Jorgensen said in an interview.

"Whenever there's lot of activity in the real sports world, we see an uptick in the 'Ultimate Team' business," he said, citing this summer's UEFA European Championship soccer tournament as an example.

Electronic Arts's mobile titles, particularly "Star Wars: Galaxy of the Heroes," also helped results, the company said. People played the combat game, which launched in late 2015, an average of 2.5 hours a day during the quarter.

Under U.S. accounting rules, videogame companies are required to defer some revenue from online-enabled games for however long they think players will use those services—typically six to nine months. Executives and analysts argue that adjusted figures paint a more accurate picture of near-term financial performance since those show the full amount of revenue from games sold in a quarter.

Even so, Electronic Arts late last month said its fiscal first quarter will be the last to include revenue, gross margin and per-share earnings on an adjusted basis. The changes are being made in response to stepped-up criticism from the Securities and Exchange Commission over companies' use of metrics that don't comply with U.S. generally accepted accounting principles, or GAAP.

On a GAAP basis, Electronic Arts said its net income was $440 million, down slightly from $442 million a year ago. Revenue was $1.27 billion, up from $1.20 billion. The latest GAAP figure included revenue deferred from previous periods, and excluded deferred revenue from the latest quarter.

For the current quarter, Electronic Arts expects revenue of about $1.08 billion and a profit of about 40 cents a share on an adjusted basis. Under GAAP, the company expects a loss of 17 cents a share on revenue of about $915 million.

Electronic Arts didn't change its outlook for fiscal 2017 but said its share count was lower than expected, resulting in earnings per share rising about 3 cents on a GAAP and non-GAAP basis. It expects full-year revenue on an adjusted basis to grow around 7% to about $4.9 billion, and per-share profit of $3.53. Under generally accepted accounting principles, it expects revenue to grow to $4.75 billion and per-share profit of $2.56.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

(END) Dow Jones Newswires

August 02, 2016 17:05 ET (21:05 GMT)

Electronic Arts Inc. (MM) (NASDAQ:ERTS)
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