Electronic Arts shares soar on upbeat earnings report

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SAN JOSE, Calif. -- Shares of Electronic Arts Inc. soared more than 11% Friday, a day after the world's biggest video game publisher beat Wall Street's earnings expectations and forecast healthier times ahead for itself and the industry.

Redwood City, Calif.-based EA boosted its fiscal year outlook Thursday and predicted sales for the holiday quarter would beat analysts' expectations.

For the overall industry, EA said it now predicts sales growth to be from zero to 5%, compared with last year. EA had previously projected industry sales would remain flat or decline by as much as 5%.

"We are very much looking forward to the holidays," EA's chief financial officer, Warren Jenson, said during a conference call to analysts. "It's the beginning of prime time for next-generation technology and entertainment."

Shares of EA climbed $6.24, or 11.77%, to close at $59.24 on the Nasdaq Stock Market.

EA's second-quarter profit fell 57% but due largely to new stock-option accounting rules.

Net income for the three months ended Sept. 30 was $22 million, or 7 cents per share, compared with $51 million, or 16 cents per share during the same period last year, the company said. The results included stock-based compensation charges of $33 million.

On an adjusted basis, excluding certain items, EA said it would have earned $65 million, or 21 cents per share, compared with $46 million, or 15 cents per share, last year.

Revenue rose 16% to $784 million from $675 million a year ago.

Analysts surveyed by Thomson Financial were expecting earnings of 2 cents per share on sales of $672.2 million.

Record sales of "Madden NFL 07" -- EA sold five million copies in the five weeks after the game's August launch -- as well as robust sales of EA's other popular sports titles, were key contributors to the strong quarter, company officials said.

For the past year, the video game software industry faced slower sales as consumers waited for new game console systems, which are now slated to go on sale later this month. But the second-quarter performance indicates that the video game market is still healthy, Jenson said in a phone interview.

"Revenue was strong and exceeded our expectations," Jenson said. "This was an exciting quarter and it's going to get that much more exciting with the consoles coming out."

Sales of games for older model machines are declining, but consumer interest in titles for Sony Corp.'s legacy PlayStation 2 system apparently remains strong. The best-selling platform, now in its sixth year with more than 106 million machines sold worldwide, still anchored 35% of EA's revenues in the quarter.

Meanwhile, sales of EA's games for Microsoft Corp.'s Xbox 360 are rising but accounted for 21% of the quarter's revenues. The Xbox 360 came out last November and will be competing against the upcoming PlayStation 3 and Nintendo Co. Wii.

EA officials said they are ready for the new console launches, with eight new titles set to be released in the quarter and more than 30 games in development for all the next-generation systems.

"We are well prepared for the holidays on all platforms," EA's Chief Executive Larry Probst said.

EA raised its outlook for its fiscal year ending March 31.

Annual revenue is now expected to be $2.95 billion to $3.13 billion, up from previous targets of $2.8 billion to $3 billion. Earnings are expected to be break-even to 15 cents per share, compared with a previous expectation of break-even to a loss of 30 cents per share.

For the key holiday quarter, EA projected revenue to be $1.2 billion to $1.3 billion. Analysts surveyed by Thomson Financial were expecting sales of $1.2 billion.

Investors have been concerned about the limited supply of Sony's PS3 as well as how well PS2 games would hold up, said P.J. McNealy, analyst at American Technology Research.

The upbeat outlook "certainly assuages any fears about the December quarter at this point," said P.J. McNealy, analyst at American Technology Research. "It doesn't erase them, but it does assuage them."

The transition between new console systems is historically rocky. And this time, the risks are further complicated by new games being made for cell phones and other portable gadgets, as well as new business models for online gaming and in-game advertising.

EA officials said they expect to see revenue from online game subscriptions, downloadable content and advertising to grow in the years to come.

Shares of EA are down 12% from a year ago. It has traded between $31.99 and $61.97 in the past 52 weeks.
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