MAY 7, 2012 7:25PM

EA Tempers Coming Layoffs With $1.2B In Digital Revs For The Year, Promise Of “Big Social Title”

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Electronic Arts announced its Q4 earnings today, and although it beat estimates, its stock continued to fall today, and is down over 5 percent in after-hours trading. The stock has fallen nearly 20 percent since its last earnings in February.

EA CEO John Riccitiello has moving to implement a restructuring of the veteran gaming company, in which it will see a reduction in its workforce as it moves to increase its digital, mobile, and social production. It has been referring to this restructuring ominously as “The Plan,” which grew legs today as it was filed with the SEC, alongside its latest investment report.

EA said in the statement that the move was being launched “to align the company’s cost structure with its ongoing digital transformation.” For some quick history: About a month ago, Derek Anderson reported that EA would be laying off 500+ employees, which came on the heels of its big Popcap acquisition, the departure of its CFO, and the ignominious title of being named “the worst company in America,” according to The Consumerist.

EA had denied reports of impending layoffs, and then qualified that by saying that the layoffs would only affect a relatively small portion of employees. In its investor conference call this afternoon, EA said that its restructuring would result indeed result layoffs, but that the long-term outlook is a net positive gain, as it plans to, in fact, add 500 employees by the end of fiscal 2013.

What’s more, the company’s stock slipped today as a result of sales being lower than expected for Star Wars: The Old Republic, which was expected to help EA wrest market share away from World of Warcraft. EA said that it had 1.3 million active subscribers, compared to 1.7 million, which analysts had expected.

That being said, EA beat expectations for both revenue and profits, driven by digital growth, which interim CFO Ken Barker said he expects will continue, and sales from its latest game, Mass Effect 3. In fact, EA’s non-GAAP revenue reached an all-time high of $4.2 billion, which saw digital revenue increase 47 percent for the year, to $1.2 billion.

on-GAAP revenue reached an all-time high of $4.2 billion, led primarily by its digital games and services — in fact, the company saw digital revenues for the year increase a full 47 percent to $1.2 billion. Barker said that digital revenues could hit $1.7 billion in the fiscal year 2013, at which point digital could comprise 40 percent of the company’s total revenues.

What’s more, mobile revenues hit $87 million in Q4 2012, which increased from $70 million in the same period a year earlier.

CEO John Riccitiello also said today that the company will be investing $80 million in fourth-gen console development, and that this kind of next-gen console development would gain traction in the coming years, with more investment in R&D. The CEO also attributed part of the reason for the layoffs to this re-focusing on next-gen console development — as well as the elimination of a few of its licensed titles.

EA also hoped to win over detractors today by teasing the fact that it plans to release a “big social title” during the current fiscal quarter (Q1 2013). EA exec Peter Moore would not say what the game was, although some have speculated that the company is working on a new version of SimCity, possibly to be released on Facebook, as SimCity for PC will be arriving later this year.

The Sims, its biggest social game to date, has been performing well, grabbing the second spot in the most popular social games rankings, behind CityVille, although its engagement has been declining of late. Social continues to have a minimal impact on EA’s bottom line in the big picture, but the executives made it clear that this will be a bigger part of its strategy going forward — spurred on by its increasingly heated competition with Zynga. “Social is moving to a good place,” Riccitiello said.

The CEO also said that he thinks brands like The Sims, SimCity, and Bejeweled have withstood the test over the years, but the hockey-stick growth for many startups is unsustainable. He said this in reference to whether or not the company would be buying up any other brands, a reference to Zynga’s recent purchase of OMGPop, the makers of Draw Something, among others.

“We dont need to buy a brand to get whats hot this quarter,” the CEO said. Although there may be a lot of noise around a particular brand or developer when it’s on the rise, that doesn’t necessarily justify its purchase at a lofty valuation, and certainly some analysts have agreed that the price of OMGPop may not have rosy long-term effects on Zynga’s stock price.

It’s a period of transition for EA, as it moves to drive stronger growth among its digital, social, and mobile titles, part of the reason that EA shared a mixed guidance for 2013, as it expects to post $4.3 billion in revenue, below the estimates of some analysts.

For more, check out Kim-Mai’s initial coverage here, and EA’s statements here.


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