Electronic Arts Inc.’s earnings and revenue from the prior year were previously incorrect. They have been updated.
Electronic Arts Inc. shares plummeted more than 10% in after-hours trading Tuesday, after executives disclosed disappointing forecasts and announced they are delaying an anticipated title and killing off the mobile versions of two popular games, which is expected to result in layoffs.
EA
EA,
missed on holiday sales and the forecast for its final fiscal quarter of the year, and early guidance for next fiscal year came in lower than expected as well. In statements, executives said cuts were made in the fiscal third quarter to compensate for the shortfall.
“As market uncertainty mounted during the quarter, we took measures to protect underlying profitability,” Chief Financial Officer Chris Suh said. “We are prioritizing the player experience, directing investment to where it can have the most positive impact for our players and on growth.”
The cuts include shelving the mobile versions of two popular games, “Apex Legends” and “Battlefield.” While “Apex Legends” has been a strong title for EA in recent years, Suh admitted Tuesday that “the performance of… the ‘Apex’ franchise was below the levels we had anticipated, reflecting the challenging market dynamics” in the fiscal third quarter.
An EA spokesperson confirmed the cuts would affect workers focused on the “Battlefield” title, but would not provide a number of employees affected nor officially confirm a VentureBeat report that the Industrial Toys studio would be closed.
“We’ve made the decision to stop the development of the current ‘Battlefield’ mobile title. … Given this decision, we are in the process of communicating to the teams impacted this week,” the statement reads. “Our goal is to redeploy as many employees affected by this decision as we can to other projects. In cases when this isn’t possible, we’ll support them through the transition process.”
Suh said in a conference call later Tuesday that changes made in the quarter would reduce expected operating expenses in the second half of EA’s fiscal year by $140 million.
EA reported fiscal third-quarter earnings of $204 million, or 73 cents a share, up from earnings of 23 cents a share a year ago. Holiday-season revenue came in at $1.88 billion, up from $1.79 billion a year ago. Net bookings for the quarter, which account for deferred revenue, were $2.34 billion, down from $2.58 billion in the year-ago quarter.
Analysts on average were projecting adjusted earnings of $3.08 a share on revenue of $1.93 billion and net bookings of $2.48 billion, according to FactSet; EA did not directly provide adjusted-earnings information in Tuesday’s release. Shares fell more than 10% in after-hours trading following the release of the results, after closing with a 0.2% decline at $128.68.
The numbers got worse in the forecast, as executives revealed that a big release previously set for the fiscal fourth quarter was moved to the next fiscal year. “Star Wars Jedi: Survivor,” previously expected in March, will now launch at the end of April, the company revealed in a blog post Tuesday.
“In order for the team to hit the Respawn quality bar, provide the team the time they need, and achieve the level of polish our fans deserve, we have added six crucial weeks to our release schedule,” the blog post said.
That move affected EA’s fiscal fourth-quarter guidance. EA executives forecast net revenue of $1.7 billion to $1.8 billion, net bookings of $1.68 billion to $1.78 billion, and earnings of 5 cents a share to 20 cents a share in the fiscal fourth quarter. Analysts on average were projecting revenue of $2.13 billion, net bookings of $2.23 billion and adjusted earnings of $2.21 a share, according to FactSet; EA executives did not provide a specific forecast for adjusted earnings per share.
Sliding the new “Star Wars” game to the next fiscal year didn’t help expectations for sales growth in that year, either.
“Excluding the impact of [foreign-exchange rates], we expect mid single-digit growth on net bookings and low double-digit growth in profitability,” Suh said. “If rates remain unchanged from today, that would equate to mid-single-digit growth on both top and bottom line.”
With EA executives now guiding for fiscal-year revenue of roughly $7.3 billion at the midpoint, that forecast would be short of analysts’ expectations for the next fiscal year. On average, Wall Street analysts were projecting revenue next fiscal year of $8.16 billion, which would be 11.8% higher than the midpoint of Tuesday’s guidance. Analysts were expecting adjusted earnings to grow 8% in the next fiscal year, based on expectations for this year that will certainly shrink after the results and fourth-quarter forecast delivered Tuesday.
EA shares have declined 3% in the past 12 months, as the S&P 500 index
SPX,
has fallen 11%.
