EA beats expectations for Q3 despite small annual decline

Industry leader Electronic Arts has announced its third quarter financial results, revealing that the expected sales decline for the firm in the holiday season was smaller than predicted - with earnings actually up in Europe and Asia.

Overall sales dropped by 3.2 per cent year on year during the quarter, which came to a close on December 31st, with the firm reporting revenues of $1.43 billion - down from $1.48 billion in the same period in 2003, although it was noted that the release schedule was also smaller, with the firm launching 11 titles as against 13 in 2003.

The decline in revenues was entirely attributable to weakness in the North American market, where the firm's sales dropped by eight per cent - a smaller decline than expected, with many analysts expecting a larger impact from the console hardware shortages in November and December and the strength of rival titles such as Halo 2 and Grand Theft Auto San Andreas.

However, that decline was offset slightly by increased earnings in Europe, where revenues rose by one per cent (reaching $666 million, as against $692 million in North America) and in the Asia-Pacific market, where revenues were up 9 per cent to $70 million.

Earnings for the quarter stood at $390.63 million, a very small decline from the $393.16 million figure in the same quarter last year, and at $1.23 per share, at the high end of estimates for the company.

Although it won't go down as one of EA's more stellar quarters, the company's healthy performance in the face of difficult market conditions - combined with a number of key strategic moves such as the signing of an exclusive license with the NFL and the acquisition of 20 per cent of Ubisoft - leaves it in a strong position at the start of 2005.

Need for Speed Underground 2 was the stand-out title in the quarter, with 8.4 million copies sold worldwide - enough to send the overall lifetime earnings for the Need for Speed franchise over $1 billion, giving EA its fourth billion-dollar franchise after Madden, The Sims and FIFA.

EA CEO Larry Probst and CFO Warren Jenson hosted a conference call to discuss the results, where they discussed a number of key questions facing the company - particularly with regard to the Ubisoft acquisition, and the next-generation consoles.

Commenting on the Ubisoft situation, Jenson said that the company wants to"keep all our options open, admitting that "we could seek a controlling interest, [but] it is also possible that we could sell our shares."

However, he assured investors that any move to gain a further stake in Ubisoft would not be a hostile one. "We expect that if anything were to happen, it would happen with the full cooperation of Ubisoft," he said.

"We have a tremendous amount of respect for their management team and their accomplishments," he continued. "Management has been clear in its public statements that it will do what is best for its shareholders. We can't ask for more than that."

Meanwhile, commenting on the question of the next-generation consoles, CEO Larry Probst said that he "would not expect" Sony to be the first out the door with new hardware - and indeed, that the PlayStation 3 might not arrive in the USA until late 2006.

"With regard to when those systems are going to launch, you will have to speak with them," he told investors, but went on to give a further prediction - saying that "with regard to market share, I would predict that the two companies are closer in market share than they were in this cycle."

Probst also opined that while software prices are likely to stay largely stable, consumers continue to demonstrate a willingness to pay premium prices for premium software - sand said that "it would not surprise me to see selected titles carry a higher price point on new-generation consoles, at least initially."