EA posted a second-quarter loss of $0.62 per share on a 45% drop in gross profits. Revenue fell by 18% to $640 million.
It's ugly on first glance, but let's whip out the Crayola box and color this appropriately. The top-line slide isn't that dreadful. It's actually offset by bloated deferred revenues, as the company made a revenue recognition tweak, changing the way it books the sale of items tied to digital delivery.
And the bottom line isn't unattractive at all after you back out the charges related to things like recent acquisitions and stock-based compensation. It's a long list of items, but adjusted profits of $0.27 a share are well ahead of the $0.21 a share it earned last year, and far better than the $0.20 per share that the pros were banking on.
And that bright future? I wasn't kidding. A year ago, EA was slow to cash in on the popularity of Nintendo's Wii. It wasn't the only publisher caught off guard. Sony
Well, now EA is the top-selling game developer of Wii titles after Nintendo itself. The $59 million in Wii-related revenues that it recorded in the latest quarter is more than double the previous quarter's revenue.
The company is also well-positioned for the holidays, with 10 titles hitting stores. Sure, the company had a few second-quarter winners. Madden NFL 08 moved 4.5 million copies. FIFA 08 was good for 2.9 million games sold internationally. Things will get better now that the holiday shoppers are coming, with the installed gamer bases for the new platforms growing substantially.
This won't bode well for just EA, of course. Other publishers with hot titles are sitting pretty. Between Activision
So enjoy the pause button, EA investors. With holiday tidings, a thick pipeline, and the rich margins of digital delivery to look forward to, the game will only get better from here.
Play on, Fool:
Electronic Arts, Activision, and Nintendo have been recommended to Motley Fool Stock Advisor newsletter subscribers. Microsoft is an Inside Value recommendation. Take-Two Interactive is a pick in the Rule Breakers growth stock research service. Want to play? Come on in and play all you want for the next 30 days with a free trial.
Longtime Fool contributor Rick Munarriz loves playing video games but doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.