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Electronic Arts Slips To Loss, Announces Restructuring
by Simon Carless
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November 1, 2007
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Electronic Arts has announced its quarterly results, with sales led by 4.5 million copies of Madden, but revenue down by 18 percent to $640 million. Though the firm did beat analyst estimates, it slipped to a $22 million loss from a $195 million profit due to accounting charges, also announcing job cuts and the shutting of the Chertsey, UK studio.
Specifically, as revealed in an official statement from the firm, revenue for the quarter was $640 million, down 18 percent as compared with $784 million for the prior year. Gross profit for the quarter was $245 million, down 45 percent year-over-year. Net loss for the quarter was $195 million as compared with net income of $22 million for the prior year.
However, this loss was partly due to the fact the company "no longer charges for its service related to certain online-enabled packaged goods games" - there is a $296 million increase in deferred revenue as of September 30, 2007, which will be recognized in future periods.
Most notably, however, EA’s Board of Directors approved a plan of reorganization on October 29th in connection with the reorganization of EA’s business into the new 'label' structure. Over the next two years, EA anticipates closing certain facilities, including EA’s studio in Chertsey, England; relocating and/or eliminating certain job positions; incurring costs in connection with lease and other contract terminations; and incurring IT and consulting costs to assist in the reorganization of business support functions.
Electronic Arts expects to incur total pre-tax charges of between $90 million and $110 million because of this re-organization, which will come with significant but unspecified job losses, the majority of which will be incurred in fiscal 2008. It's also added: "The Company estimates these actions will result in annual pre-tax cost savings of approximately $25 million to $30 million."
According to the firm, sales were driven by Madden NFL 08, FIFA 08, NCAA Football 08, Tiger Woods PGA TOUR 08 and MySims, each selling over one million copies. Specifically, Madden NFL 08 sold 4.5 million copies and was EA’s best performing title in the quarter; FIFA 08 sold 2.9 million copies internationally – with sell through at retail up double digits year-over-year; MySims, a new owned intellectual property, sold over one million copies on the Nintendo DS and Wii.
In addition, EA had 12 percent share in North America and an estimated 13 percent in Europe – making EA the number one third party publisher on the Wii year-to-date.
“Our strategic priorities on quality, innovation and managing cost are showing progress,” said John Riccitiello, Chief Executive Officer. “Highly accessible new properties like Skate and MySims have broken through with consumers and EA Sports continues to deliver great experiences on every platform. We’ve also announced a restructuring as part of a plan to better align cost with revenues.”
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