EA’s Digital Sales Can’t Offset Falling Console Revenue

Electronic Arts, a bellwether for how well the videogame market is doing, fell short of analyst expectations in the third quarter due to a drop in console game sales.

EA's Dead Space 3: WatchYourBack“The quarter was tougher than we thought,” said EA’s CFO Blake Jorgensen. “There was a big slowdown in the console business industrywide.”

In addition to a general industry slump, EA also said its Medal of Honor game performed poorly in the third quarter. “When we saw the weakness in the title, we wound back expenses in the quarter,” said Jorgensen, who cut marketing expenses and redeployed headcount to other departments as needed.

The company said console gaming revenue fell 20 percent in 2012 compared to the prior year, but that the drop has been partially offset by its digital platforms. Smartphones, tablets and additional content for existing console titles continue to perform well, unlike the console business, which is at the tail end of its lifecycle.

For the quarter, the company’s non-GAAP net revenue totaled $1.18 billion, which was below its guidance of $1.25 billion to $1.35 billion. Analysts were expecting revenue of $1.29 billion. The company’s non-GAAP profit totaled 57 cents a share to beat the midpoint of its guidance of 50 cents to 60 cents, and to beat analyst expectations of 56 cents.

Overall, the results did not surprise investors. The company’s stock is down 28 cents, or 1.9 percent, in after-hours trading, to $14.80 a share.

Some examples of digital titles that performed well during the third quarter include Battlefield 3 subscriptions, which have generated more than $108 million in sales in the first three quarters of the company’s fiscal year. FIFA 13 digital net revenue topped $100 million in the third quarter alone. On mobile, the company’s free-to-play game, The Simpsons: Tapped Out, generated $23 million on iOS.

Overall smartphone and tablet sales generated $79 million during the quarter, increasing 36 percent year over year.

In the fourth quarter, EA will be closely watching the performance of Dead Space 3, the Sci-Fi title launching next week. So far, based on pre-sales, it is outperforming last year’s release, but the soft market worries Jorgensen.

“In Q4, our caution is continuing. In the industry, no major title has shipped yet, so right now, we are staring into the unknown,” he said.

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