Electronic Arts Inc., the world's biggest video game publisher, on Thursday posted a quarterly profit that fell 31 percent as a move to new video game console technology dampened revenue in the holiday quarter.
EA, known for its "Madden NFL" and "The Sims" game series, also forecast earnings and revenue for the current quarter that were below of analyst expectations.
But shares rose 1.6 percent as revenue barely topped Wall Street expectations. Results were crimped by reserves against potential game returns, which one analyst viewed as conservative accounting.
The company, which in December had warned that results would be "well below" estimates, said net income in its fiscal third quarter was $259 million, or 83 cents per share, compared with net income of $375 million, or $1.18, in the year-earlier quarter ended December 31.
Revenue declined to $1.27 billion from $1.43 billion.
Excluding items, its per-share profit was 86 cents, below the Wall Street consensus of 90 cents a share before items. Revenue just topped Wall Street targets of $1.26 billion, according to Reuters Estimates.
The industry is in the midst of a rocky transition to next-generation video game console technology, and several analysts predict that market conditions will worsen but likely bottom out this year.
EA laid off workers this week, cutting its roughly 7,000 job force by under 5 percent due to the console transition.
Microsoft Corp. released its Xbox 360 console on November 22 in North America and shortages have been blamed for exacerbating the slowdown in consumer spending as gamers wait and save for new games and machines.
Sony Corp., whose PlayStation 2 is the world's most popular video game console, and Nintendo Co. Ltd. are each slated to release new machines this year.
Wedbush Morgan analyst Michael Pachter said EA raised reserves to cover potential discounting of games by retailers.
"One reason they didn't make my number was because they added so much to the reserves," said Pachter, who viewed the company's decision to add to reserves as a conservative way to account for risk.
EA forecast earnings before one-time items of 6 cents per share to 14 cents per share in the fiscal fourth quarter on sales of between $550 million and $600 million.
Analysts' average forecast for the fourth quarter had called for earnings before items of 15 cents per share on revenue of $631.3 million, according to Reuters Estimates.
Electronic Arts Chief Financial Officer Warren Jenson said the company is investing in such things as next-generation console games, online and mobile gaming and expanding its content portfolio. He said the company will also continue to look at acquisitions.
"We are transitioning out of current-generation software to refocus resources into these strategic areas, which are the next sources of growth," Jenson said in a telephone interview.
EA's competitors include Activision Inc., Take-Two Interactive Software Inc. and THQ Inc.
The company, which has roughly double the annual revenue of its closest rival Activision, on Thursday traded at a multiple of around 38 times analyst estimates for earnings before items in its fiscal year ending March 2007 and are down 18 percent from a year ago. Activision had a comparable multiple of around 30.
