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Electronic Arts swings to 3Q loss Author:BARBARA ORTUTAY Date:03/25/14 Click:

NEW YORK - Video game publisher Electronic Arts Inc. said Thursday it swung to a loss in the third quarter, hurt by restructuring charges and the way it accounts for online-enabled games.

The company acknowledged its business has been "mixed" in a robust market for games, though adjusted earnings met Wall Street's expectations.

For the quarter ended Dec. 31, the world's biggest independent video game maker posted a loss of $33 million, or 10 cents per share, compared with a profit of $160 million, or 50 cents per share, in the same period a year ago.

Adjusted earnings, excluding a change in revenue recognition and other items, were $290 million, or 90 cents per share, matching average analyst expectations as surveyed by Thomson Financial.

Revenue jumped 17 percent, to $1.5 billion, from $1.28 billion. EA said it deferred $231 million in sales of online-enabled games to future periods. If it had not, sales would have been $1.73 billion. Analysts were expecting sales of $1.74 billion.

"Need for Speed Pro Street," the latest installment of the racing franchise, was the quarter's best-selling title, but "The Simpsons Game" and "Rock Band" also did well, the company said.

Chief Executive John Riccitiello called the results "solid but mixed." The company saw stiff competition in North America, where its business was "flat in a very robust market" when not including EA Partners, its collaboration with outside studios, Riccitiello said in a conference call with analysts.

While it kept its spot as the top game publisher, EA lost market share in both North America and in Europe.

"Although we hit our numbers our numbers and anticipated our share losses, losing share is just not acceptable," Riccitiello said.

The market share losses come at a time when retail sales of video games are at an all-time high, fueled by their growing acceptance as a mainstream form of entertainment akin to movies or music. U.S. game hardware and software sales reached nearly $18 billion last year according to the NPD Group, with a strong showing during the holidays even as other retail sectors struggled.

EA has long been the world's largest independent video game publisher — those that do not also make consoles like Nintendo Co., Sony Corp. and Microsoft Corp. But Vivendi SA's looming purchase of a majority stake in Activision Inc. will create a powerful rival.

In a deal expected to close in the first half of this year, the French media and telecommunications company plans to combine Activision with its games unit to form Activision Blizzard, which will own the wildly popular online game "World of Warcraft" and the "Guitar Hero" franchise, among others.

Looking ahead, EA forecast fourth-quarter and full-year earnings below Wall Street's expectations because of the delay of two lucrative titles, "Battlefield: Bad Company" and "Mercenaries 2: World in Flames," until later. EA did not give any release dates for upcoming titles, including the highly anticipated "Spore" from "Sims" creator Will Wright, though it said the game will be out before the holidays.

Excluding acquisition charges, the effect of the deferred revenue and other items, the company expects fourth-quarter results between a loss of 3 cents and a profit of 2 cents per share, on sales of $925 million to $1.05 billion.

Analysts had predicted a fourth-quarter profit of 16 cents per share on sales of $837.9 million.

For the fiscal year, EA forecast a loss between $1.67 and $1.48 per share and adjusted earnings of 93 cents to 98 cents per share. This is at the lower end of the company's previous forecast and below Wall Street's expectations of $1.11 per share.

Colin Sebastian, an analyst at Lazard Capital Markets, said EA has a "very good" lineup that should help it gain market share in the coming months.

He said he is looking forward to "Spore," not only because of the publicity it has received and gamers' eager anticipation, but also from a financial perspective. Because it is an internally owned title, its margins are higher, meaning EA will make more money from it.

EA also said it closed the acquisitions of BioWare Corp. and Pandemic Studios in January. The $860 million deal was the largest in company's history. The studios EA bought from Elevation Partners are known for their action, adventure and role-playing games.

EA, based in Redwood City, Calif., reported results after the close of market. EA's shares fell $1.47, or 3.1 percent to $46.75 in after-hours electronic trading. The stock hit a 52-week low of $44.23 earlier this week.

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