EA’s Q3 “A Clear Disappointment”

Electronic Arts [ERTS] will lay off 1,100 of its workforce after posting a huge Q3 drop in its bottom line following a disappointing holiday season, the company said today.

EA posted a net loss of $641 million, or $2 per share on revenues of $1.7 billion for the quarter, which ended December 31. That compares to a net loss of $33 million, or 10 cents per share on revenues of $1.5 billion in the prior year’s Q3.

While EA staples like FIFA and Madden performed well, others such as Need for Speed Undercover “did not deliver,” according to CEO John Riccitiello on a conference call with investors. Additionally, the sagging economy is forcing retailers to reduce their inventories. “There was a significant discrepancy between sell-in and sell-through,” Riccitiello said.

The company has delayed key titles to Q1 of fiscal 2010, including The Sims 3 for PC and The Godfather 2 for Xbox 360, PlayStation 3 and PC. The Sims 3, originally slated to ship this month, will now ship June 2 to allow more time to build the marketing campaign, said Riccitiello. The Godfather 2will ship in Q1 FY10 instead of Q4 FY09, Riccitiello added.

“Our holiday quarter came in below our expectations and we have significantly reduced our financial outlook for fiscal 2009, a clear disappointment,” Riccitiello said. Despite this, EA is optimistic for fiscal 2010, which will be 30 percent leaner in its title count according to CFO Eric Brown.

The layoffs represent 11 percent of EA’s workforce and will occur at all levels, Brown said. “Most are in high-cost locations,” he added.

EA has lowered its fiscal 2009 guidance and now expects a loss of between $3.29 and $3.56 per share, but expects to drastically cut that loss in fiscal 2010, predicting a loss of between 5 and 40 cents per share.

Riccitiello vowed that EA will make a concerted push for a greater revenue growth on Wii. While EA’s revenue was up 24 percent on Nintendo’s platform to $172 million, that only accounted for four percent of its total revenues across all platforms, and was behind 360 and PS3, which were 25 and 11 percent, respectively.

The company will ship three new SKUs in its MySims franchise for Nintendo’s console, he said, adding that the series is EA’s best-selling title on Wii. EA won’t forget core gamers on Wii and will ship the well-reviewed Dead Space for the console in the next fiscal year, Riccitiello said. “The Nintendo Wii is even more important than it was a year ago.”

Titles like Dead Space was one of several new IPs EA shipped last year, but developing new titles in existing franchises are usually less expensive and perform better on store shelves, Riccitiello said. “Generally, games with a ‘2’ on them sell better, and do so with a lower R&D budget,” he said.