Electronic Arts' Powerful Quarter (Fool Plate Special) October 22, 1999

An Investment Opinion

Electronic Arts' Powerful Quarter

By Dave Marino-Nachison (TMF Braden)
October 22, 1999

As Fools know well, individual investing shouldn't be a competitive endeavor. "Oh yeah? Well, I'm up 300% this week," sounds a lot like "nanny nanny boo boo" to me. What's really important, of course, is generating wealth over time on one's own terms and within one's own abilities.

All of that goes out the window, however, when it comes to the fine art of Foolish Dueling -- and that's why I'm going to try and apply the coup de grace to my colleague Rick, finishing off Wednesday's Electronic Arts (Nasdaq: ERTS) Duel with a final thrust.

The interactive entertainment software company's fiscal second-quarter earnings came out last night, but what I'd like to talk about isn't Electronic Arts' (EA) EPS numbers -- impressive, nonetheless, increasing 65% year-over-year to $0.28 from $0.17 and beating First Call's consensus estimate by $0.03 on a 38% rise in revenue -- specifically but the reasons behind them.

"The holiday season is off to a strong start again this year," said Chairman and CEO Larry Probst. "With the strength of our key franchise products, the worldwide success of our PC products, and a great second half line up, we are well on our way to achieving our goals for the year."

I'd like to revisit that first statement, the one about the company's franchise products. Among the company's top sellers for the quarter were the most recent iterations of top-selling titles like NHL 2000, Final Fantasy VIII, Madden NFL 2000, NASCAR 2000, NHL 2000, and NCAA Football 2000 for Sony's (NYSE: SNE) PlayStation, and Madden NFL 2000 and NASCAR 2000 for Nintendo's N64.

A few notables: As exclusive U.S. publisher of Japanese developer Squaresoft's games, EA, through "Final Fantasy VIII," added fantasy gaming's most successful and best-selling franchise coming off a genre-reviving seventh version to its EA stable. And the "Tiberian Sun" extension of the Command & Conquer military simulation line drove booming sales in Europe and the Asia/Pacific region -- where sales were up 100% and 48%, respectively -- and were also strong here, where total sales rose 21%.

All this comes as the company shipped essentially the same amount of new titles -- 17 in all -- for each of the three platforms (PC, PlayStation, and N64) for which it markets games.

EA also benefited from a broader market factor likely to affect companies across the board: something we'll call the "Dreamcast Effect." PlayStation and N64 prices had been holding steady at about $130 for some time, but when Sega launched it's new 128-bit Dreamcast system -- which retails for around $200 -- Nintendo and Sony responded by cutting their respective systems' prices to $100, which has helped software sales.

This confluence of market environment and strong momentum appears to have EA pretty well poised for the holiday season. Whether that means you want to go read the Duel and then hit the "Vote for TMF Braden" button a few dozen times is your business, however.

Related Links:
EA Web Page
EA Message Board
Dueling Fools, 10/20/99, Electronic Arts