Sports Drive Record EA Q2 Sales

Sports Drive Record EA Q2 Sales

Sports Drive Record EA Q2 Sales

EA has reported record sales for its second fiscal quarter thanks in large part to sales of its sports titles, but net income is down for the period due to pre-tax stock-based compensation charges; conference call details within…

Revenue for the quarter ended September 30 was $784 million, up 16 percent from $675 million for the same quarter a year ago.

Net income stood at $22 million, down significantly from $51 million. EA said that it adopted a share-based payment plan at the beginning of the fiscal year, which resulted in $33 million in charges for the second quarter.

Trailing 12-month operating cash flow was $571 million versus $592 million a year ago. The end of the quarter exhibited cash, cash equivalents and marketable securities of $2.4 billion.

EA chief financial and administrative officer Warren Jenson said in a statement, “This was a strong quarter for EA. While our industry remains in the midst of transition the landscape looks strong enough that we are able to increase our guidance range for the year.”

By region, revenues in North America were up 16 percent to a Q2 record of $512 million and Europe was up 28 percent to record $245 million. Revenue from Asia, however, was down 34 percent to $27 million.

Xbox 360 revenue for the quarter was $166 million, and EA said that year-to-date, it’s the number one publisher on Microsoft’s next-gen system in North America and Europe.

The company said that sports titles were the main driver of sales for the quarter. Madden NFL 07 sold 5 million copies in five weeks, and stands as the number one North American title year-to-date. College football performed well also, as NCAA Football 07 sold 2 million units for the quarter. In addition, NHL 07 reached platinum status and FIFA 07 sold almost 2 million units in two weeks.

Looking ahead, EA expects Q3 revenues to be between $1.2 and $1.3 billion. For the fiscal year ending March 31, 2007, EA forecasted sales between $2.95 and $3.125 billion.

A thriving online business

Frank Gibeau, EA’s executive VP of North American publishing, said that the company is pleased with its experience on Xbox Live Marketplace. The firm currently offers a variety of paid content on the service, including new levels for games, new in-game characters and most recently, cheat codes, which have been a cause for controversy among some gamers.

“The Xbox Live service is proving to be a great marketplace for content,” said Gibeau. “We have a solid position there in terms of what we’ve produced to date. In fact, looking forward to Q4, we have a very robust set of downloadable content that’s coming from games like Def Jam: Icon…”

He confirmed that EA plans to take advantage of similar services on the PS3. “At launch on the PlayStation 3, I don’t anticipate that we’ll have downloadable content, but going into Q4 is when we’ll have that available.”

Jenson added to Gibeau’s comments, revealing pretty impressive numbers related to EA’s “digital revenue.” He stated, “In the quarter, if you look at total digital revenue—in-game advertising, [casual game site] Pogo, microtransations, Xbox Live—all of that across the board, we had about $28.5 million of revenue. That’s up about 40 percent year-over-year. We’re at a nice healthy run rate in our digital business.”

During the call, EA also reaffirmed its faith in in-game advertising, although specific forecasts for revenues are yet to be made. “We’re very bullish on dynamic in-game advertising,” said Gibeau … “We’re literally just starting to get the data back on how they’re flowing, so I would hesitate to forecast a percentage or talk about the business model until we get a little more time under our belts with Massive and IGA.”

On EA’s Asian stategy

During the company’s quarterly conference call, Jenson offered an update on EA’s Asian strategy. Asia was the only region during the quarter that experienced a drop in sales. “I think the most encouraging thing that we have seen this past year in Asia has been the success of FIFA Online so far,” said Jenson. “Year-to-date, it’s not a huge revenue contribution, but the fact that it’s one of the top five online mid-session games in Asia, it’s great. The fact that we’re over 700,000 microtransactions is great. It’s very positive learning for us, how to do that in the Asia marketplace.”

He added that the company is in the foundation-laying stage of its Asia strategy. “The trick for us going forward is to take that success that we’ve had in Korea and replicate that in Taiwan, replicate it in China and in other Asian countries in order to build a powerful, more long term revenue base.”

He continued, “The second key to building is to take other titles like NBA Street, for example, and do the same thing in Korea, China and other marketplaces. Over the course of the coming years, that’s exactly what you’re going to see us do.”

EA added that the company has around 100 people “on the ground” in Shanghai developing games with a strong focus on localization.