Electronic Arts’ stock plays well after strong earnings

By Nick Kariuki

Shares of Electronic Arts Inc. have risen 70 percent in 2014.

Electronic Arts Inc. shares surged Wednesday after the video game publisher, getting a boost from strong sales of its established stable of blockbuster titles on  the new generation of gaming systems, turned in fiscal second quarter earnings that beat analyst expectations.

For the quarter ending Sept. 30, EA swung back into the black with net income of $3 million, or 1 cent per diluted share, up from a year-earlier loss of $273 million, or 89 cents a share.

Revenues rose 17 percent to $1.22 billion from $1.04 billion the year before.

The game publisher’s results are routinely skewed by onetime items. On a “non-GAAP” or adjusted basis, per share earnings were 73 cents, up from 33 cents a year ago. This was well above the 53 cents that analysts surveyed b Yahoo Inc. were expecting.

“Across EA’s portfolio, our second quarter results demonstrated the value we can deliver across different experiences, platforms and geographies,” EA’s Chief Executive Officer Andrew Wilson said in an earnings call after the company released results Tuesday evening.

The Redwood City, California based company has consistently been one the world’s leading video game publishers. EA’s blockbuster stable includes highly popular sports games, which update annually, making the company the dominant force in the sports-gaming genre. Other big-selling titles from other genres include “Titanfall,” “Plants vs Zombies,” “The Sims,” and “Battlefield.”

EA has drawn criticism in the past for launching some high-profile games marred by various technical issues.  Since Wilson was named to the top job just a year ago, the company has reduced its number of titles to focus on the biggest sellers, and is avoiding its earlier tendency to rush the release of games. This helped to improve the company’s reputation for launch issues.

EA’s improvement has also reflected on its performance in the stock market this year. The company’s shares have jumped more than 44 percent in the year, dramatically outperforming an about 12 percent upturn for the S&P 500.

In the latest quarter, Morningstar analyst Peter Wahlstrom said in an online commentary,  EA’s solid results reflect the success of the new strategy, as well as the fact that “the transition to a new generation of gaming consoles outweighed weaker prior-generation console revenue.”

The positive report from the after hours earnings call helped the company’s share price on the Nasdaq Wednesday. In late-afternoon trading, EA shares were up $1.39, or 3.7 percent, at $38.87.

Along with its premium games on current-generation console sales, EA also made significant strides in mobile gaming sales and digital downloads for computers and consoles. Mobile gaming sales grew 14 percent to $117 million from around $103 million. Digital revenue, a growing sector for all game companies, came in at $453 million, which beat the consensus estimate of $432 million.

The shift from selling actual copies of games to digital downloads is helping profits.  “While its physical business continues to decline,” Pacific Crest Securities analyst Evan Wilson wrote in his earnings recap, “the digital business, combined with lower marketing spending, has improved EA’s margin spending.”

Chief Financial Officer Blake Jorgensen upgraded the company’s guidance for fiscal year 2015 in the earnings call. The company raised its adjusted earnings per share for financial year 2015 to $2.05, up from July’s previous forecast of $1.85.

The company’s earning announcement came the same day as the launch of EA’s “NBA LIVE 15.” The blockbuster title “Dragon Age: Inquisition,” mobile games “Peggle Blast” and “SimCity BuildIt,” and an expansion to “Battlefield 4” were also announced for the current quarter.

EA also set a firm date for the delayed new stand-alone game in the Battlefield franchise, “Hardline,” which will launch in North America on March 17, 2015.