Electronic Arts Inc.’s prior year results and revenue were previously incorrect. You have been updated.
Shares in Electronic Arts Inc. plunged more than 10% in after-hours trading on Tuesday after executives released disappointing guidance and announced they will postpone an expected title and end mobile versions of two popular games, likely to trigger layoffs will.
EA EA,
missed holiday sales and the forecast for the last fiscal quarter of the year and the early forecast for the next fiscal year also came in lower than expected. In statements, executives said cuts were made in the fiscal third quarter to close the deficit.
“As market uncertainty increased during the quarter, we took steps to protect underlying profitability,” said Chief Financial Officer Chris Suh. “We prioritize the gaming experience and direct investments where they can have the most positive impact on our players and growth.”
The cuts include the discontinuation of 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 in the fiscal third quarter “was below what we expected, reflecting the challenging market dynamics”.
An EA spokesperson confirmed that the cuts would affect workers focused on the Battlefield title, but would not name a number of employees affected, nor officially confirm a VentureBeat report that the industrial toys studio would be shutting down.
“We have made the decision to discontinue development of the current ‘Battlefield’ mobile title. … In light of this decision, we are in the process of communicating with affected teams this week,” the statement said. “Our goal is to transfer as many employees affected by this decision to other projects as possible. In cases where this is not possible, we support them during the transition process.”
Suh said in a conference call later Tuesday that the changes made in the quarter would reduce EA’s expected operating expenses by $140 million in the second half of its fiscal year.
EA reported earnings of $204 million, or 73 cents a share, for the third quarter, up from earnings of 23 cents a share a year ago. Holiday revenue was $1.88 billion, up from $1.79 billion a year ago. Net bookings for the quarter, attributable to deferred income, were $2.34 billion compared to $2.58 billion in the same quarter last year.
Analysts on average forecast adjusted earnings per share of $3.08 on sales of $1.93 billion and net bookings of $2.48 billion, according to FactSet; EA didn’t provide direct adjusted earnings information in Tuesday’s release. Shares fell more than 10% in after-hours trading following the earnings release after closing down 0.2% at $128.68.
The numbers worsened in the forecast as executives revealed that a major release previously scheduled for the fiscal fourth quarter has been pushed back into the next fiscal year. Star Wars Jedi: Survivor, previously expected in March, will now be released in late April, the company announced in a blog post on Tuesday.
“In order for the team to hit the Respawn quality barrier, give the team the time it needs, and achieve the level of polish our fans deserve, we’ve extended our release schedule by six crucial weeks,” the blog post reads.
The move impacted EA’s fourth-quarter fiscal guidance. EA executives are forecasting net income of $1.7 billion to $1.8 billion, net bookings of $1.68 billion to $1.78 billion and earnings of 5 to 20 cents a share in the fiscal fourth quarter. Analysts on average forecast sales of $2.13 billion, net bookings of $2.23 billion and adjusted earnings of $2.21 per share, according to FactSet; EA executives haven’t provided a specific guidance for adjusted earnings per share.
The fact that the new “Star Wars” game was delayed until next fiscal year didn’t help expectations for revenue growth this year either.
“Without the effects of [foreign-exchange rates], we expect mid-single-digit growth in net bookings and low-double-digit growth in profitability,” Suh said. “If interest rates hold flat from today, that would equate to mid-single-digit growth in both revenue and earnings.”
With EA executives now forecasting annual sales of about $7.3 billion at the midpoint, that forecast would fall short of analysts’ expectations for the next fiscal year. On average, Wall Street analysts were forecasting next fiscal year revenue of $8.16 billion, which would be 11.8% higher than the midpoint of Tuesday’s forecast. Analysts had expected adjusted earnings to rise 8% in the next fiscal year based on expectations for this year, which are certain to shrink after earnings released on Tuesday and fourth-quarter guidance.
EA shares are down 3% over the past 12 months, as is the S&P 500 index SPX,
has fallen by 11%.
