NEW YORK—Video-game software publisher Electronic Arts Inc. reports earnings for its fiscal third quarter on Thursday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Video games were among the few items people kept on buying throughout the holidays, even as economic worries had them cutting back on apparel, toys and other items. U.S. retail sales of video game software hit $8.64 billion in 2007, with $2.37 billion of it in December, according to market researcher NPD Group.
Video game companies pull in most of their money during the holidays, which makes the December quarter the most important one for EA. "Rock Band," "Need For Speed: ProStreet" and sports games such as "Madden NFL 08" likely fueled a solid quarter, said BMO Capital Markets analyst Edward Williams in a client note.
EA has enjoyed its status as the world's largest video-game publisher, but it will soon have a worthy rival. French media and telecommunications company Vivendi SA is buying a majority stake in Activision Inc. and combining it with its games unit in a deal expected to close later this year. The new company, Activision Blizzard, will own the wildly popular online game "World of Warcraft" and the "Guitar Hero" franchise, among others.
EA said in October it will buy two software studios from Elevation Partners in a deal worth $860 million, the largest in company history. BioWare Corp. and Pandemic Studios, are known for their action, adventure and role-playing games. Elevation owns their parent, VG Holding Corp.
BY THE NUMBERS: In November, EA forecast adjusted earnings of 75 cents to 95 cents per share on sales of $1.33 billion to $1.58 billion.
Analysts, on average, are predicting a profit of 90 cents per share on sales of $1.74 billion, according to a poll by Thomson Financial.
ANALYST TAKE: Analysts expect EA's results to fall at least within company guidance, but investors' eyes will be glued to forward-looking outlooks.
"The current market environment can be particularly violent on high multiple stocks performing 'only' in-line with expectations and any conservative tone from management on future performance can be particularly damaging," wrote Janco Partners analyst Mike Hickey in a note to investors.
Wedbush Morgan analyst Michael Pachter said late-quarter sales of "Rock Band" likely ensured better-than expected revenue, and a slowdown in research and development spending will lead to earnings-per-share upside.
The company may provide a cautious outlook for fiscal 2009 -- below current analyst expectations -- because it will likely discuss next year's prospects at its upcoming analyst day on Feb. 12, Pachter said. The analyst, however, doesn't expect EA's actual results to be as low as the expected guidance.
STOCK PERFORMANCE: Shares of the Redwood City, Calif.-based company climbed about 1 percent during the quarter to close at $58.41 at the end of December. It hit $61.62 in October, it's highest point in more than a year.
Since the start of 2008, EA's shares have lost nearly 18 percent.
