With the video game industry hitting a virtual wall during the console transition period, key players are starting to show signs that business has finally bottomed out.

On Tuesday afternoon, Motley Fool Stock Advisor selection Electronic Arts (NASDAQ:ERTS) posted a net loss of $81 million, or $0.26 per share, for the first quarter, worse than the $58 million, or $0.19 per share, a year ago. But excluding $37 million in stock options expense (not accounted for in last year's results) and other items, adjusted EPS was a net loss of $0.12 per share, up from $0.18 per share last year. And more importantly, net revenue actually climbed 13% to $413 million.

The adjusted net loss of $0.12 per share (not using generally accepted accounting principles) came in well ahead of the analyst estimate of a $0.24-per-share loss, while the revenue figure blew away the $335 million analyst estimate. As a result, Electronic Arts shares were up 8% to more than $50 midday Wednesday.

A number of titles drove the better-than-expected results. By far the biggest was FIFA World Cup, which sold more than 2.8 million copies. It was the best-selling title in the U.K. for seven consecutive weeks, and in Germany for six consecutive weeks. The company also singled out Battlefield 2 for the Microsoft (NASDAQ:MSFT) Xbox 360, as well as yet another Sims 2 product. Even NFL Head Coach, a sort of novelty product based on EA's exclusive NFL license, sold a relatively impressive 400,000 units for the Sony (NYSE:SNE) PlayStation 2, the first-generation Microsoft Xbox, and the PC.

The only real disappointment in the report was that Electronic Arts' outlook for the year remains mostly unchanged, suggesting caution heading into the long-awaited release of the next-generation Sony PS3. Despite handily beating its own forecast for a non-GAAP net loss of $0.28 to $0.22 per share for the first quarter, EA simply maintained its full-year outlook of non-GAAP earnings of $0.35 to $0.65 per share. The company did raise its full-year net revenue forecast slightly to account for the second-quarter performance: It now sees net revenue for the year at $2.8 billion to $3 billion, up from $2.7 billion to $2.95 billion.

For the second quarter -- featuring the release of the updated hit NCAA Football and Madden NFL series -- EA expects to break even on a non-GAAP basis.

The Outlook


Net Revenue



Q2 2007

$635 to $685 million

Net loss of $0.28 to $0.22

Break even

FY 2007

$2.8 to $3 billion

Net loss of $0.30 to break even

$0.35 to $0.65

EA's report follows a better-than-expected report from smaller rival THQ (NASDAQ:THQI) last week. Activision (NASDAQ:ATVI) reports its first-quarter earnings Thursday.

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Fool contributor Jeff Hwang owns shares of Electronic Arts and Activision. The Fool has a disclosure policy.