Video game publishers have been warning us all year long that 2006 will be a dud, as the marketplace sorts itself out and penny-pinching gamers save up for their next-generation consoles. But as it turns out, market leader Electronic Arts (NASDAQ:ERTS) isn't in such a bad funk after all.
Last night, EA posted fiscal second-quarter results that found net revenue soaring 16% higher to $784 million. Earnings per share clocked in at $0.07 per share, or $0.21 a share on an adjusted basis (backing out acquisition, amortization, and stock-based compensation costs). Poor analysts. They had been so disheartened by the sector's prevailing pessimism that they were banking on EA earning just $0.02 a share on $673 million in revenue.
This doesn't mean that we can start preparing an Upside Surprise Party for Monday, when rival Activision (NASDAQ:ATVI) reports. A lot of the gains here were specific to EA's sporting titles, which are always major drivers during the September quarter.
Thanks to their annual nature, sports games tend to do well, even as consumers tire of purchasing titles for fading consoles. Gamers know that they will buy it again next year on the new console, so there's no harm in buying Madden 2007 for the Nintendo (NASDAQ:NTDOY.PK) GameCube or Sony's (NYSE:SNE) PlayStation 2.
There was still a great deal of strength in the company's gridiron titles. Madden 2007 has sold 15% more copies than last year's version at this point. NCAA Football 07 has sold 16% more than its predecessor. The company's golf, basketball, hockey, and soccer titles have also been selling briskly.
The company has also been successful in thinking outside of the video game console box. EA has recently teamed up with Apple Computer (NASDAQ:AAPL) to release games for the Apple iPod, and it's now a major player in cell phone games as well.
EA's strong performance during a transitory period now finds it ratcheting up its outlook. For the full fiscal year that ends in March, EA no longer expects to post a loss for the period. Instead of a loss of $0.15 a share, EA looks to at least break even this year, and it could earn as much as $0.15 a share. The top line will come in between $2.95 billion and $3.125 billion, up from original yearly targets of $2.8 billion to $3 billion.
In short, it was an amazing performance by EA, though the next few quarters bear watching. EA now has more conventional -- and less sporting -- titles to dictate its fate. For now, the message is clear from EA: Game on!
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Longtime Fool contributor Rick Munarriz loves playing video games, but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.
