Sales rise despite economic worries
Consumers might be pulling back on their shopping and home buying, but strong quarterly earnings reports Thursday from two video-game giants showed people are still shelling out money to have fun.
Electronic Arts Inc. posted a 17% jump in sales for the holiday quarter to $1.5 billion, revved up by sales of “Need for Speed” and “Rock Band.”
Meanwhile, Sony Corp. posted a 10% increase in sales, thanks in part to its games division, which swung to a profit for the first time since launching its PlayStation 3 console in November 2006.
Both EA, based in Redwood City, Calif., and Sony rode a wave of consumer spending on games that surged 43% in the United States last year, according to the NPD Group.
“Since entertainment truly is a discretionary expenditure, one might expect that in tough economic times you’d see consumers make fewer purchases or delay purchases,” said Anita Frazier, industry analyst with NPD. “That surely wasn’t the case with video games in 2007. Perhaps gaming provides a much-needed diversion from real-world woes.”
The numbers suggest that, while housing and retail sales may be in a slump, the video game industry has dodged the economic slide and is expected to remain a bright spot in consumer spending throughout the year.
Greg Goss is doing his part to keep the game industry engines going. The 30-year-old database administrator from Atlanta spent about $600 last holiday season buying games, including “Rock Band,” a game co-published by EA that lets players simulate being in a band, and “Uncharted: Drake’s Fortune,” an adventure game Sony published for the PS3.
“I have four or five friends come over and play ‘Rock Band’ on the PS3,” Goss said. “It’s an all-day thing.”
That’s music to the ears of Warren Jenson, EA’s chief financial officer.
“For the cost of taking your family to a two-hour movie, you can buy a game that can last weeks or even months,” Jenson said. “It’s a good value . . . during times when there’s not as much to go around.”
EA lost $33 million, or 10 cents a share, for its fiscal third quarter ended Dec. 31, largely because it changed its accounting to stagger the reporting of revenue for its online-enabled games to reflect the costs of supporting those games. The company earned $160 million, or 50 cents a share, in the previous year’s third quarter.
Without the accounting and other one-time changes, EA earned $290 million, compared with $201 million a year earlier.
EA’s quarterly sales rose from $1.3 billion a year earlier.
“This was the single biggest quarter in EA’s history” in terms of sales, Jenson said. “It was a blowout quarter.”
The company projected fiscal 2008 sales of $3.5 billion to $3.6 billion, up from $3.1 billion in 2007. But it lowered its fourth-quarter earnings forecast because two games expected to ship this quarter have been delayed.
Shares gained 14 cents to close at $47.37 before results were released. But they lost as much as $1.12 to $46.25 in after-hours trading on the lowered earnings projection.
Sony’s games division, meanwhile, ended a seven-quarter losing streak totaling more than $3.5 billion of red ink. Its PlayStation unit posted a $113-million operating profit for its fiscal third quarter ended Dec. 31, a turnaround from a $475-million loss for the year-earlier quarter.
The Japanese juggernaut took in $5.1 billion in sales of consoles and software, up 31% from the year-earlier quarter. It sold 4.9 million PS3 consoles, compared with 1.7 million in 2006 when it launched the PS3. Sony also sold 26 million games for the PS3, up from just 5.3 million a year ago.
Rising sales of games along with solid demand for liquid crystal display TVs and digital cameras helped the electronics and entertainment company boost quarterly profit 25%. Overall, Sony’s net income climbed to $1.9 billion from $1.5 billion, and total sales rose 9.6% to $26.9 billion.
“Their PlayStation business is showing improvement, no doubt about it,” said Colin Sebastian, an analyst with Lazard Capital Markets.
Nevertheless, PlayStation 3 remains in third place behind Nintendo Co.'s Wii and Microsoft Corp.'s Xbox 360. And the console continues to sell for less than what it costs Sony to make, Sebastian said.
On the other hand, video games are poised to hit a particularly sweet spot this year, thanks to a series of price cuts for the PS3 and the Xbox 360, said John Taylor, managing director of Arcadia Investment Corp.
“Consumers are just starting to respond to lower prices of the consoles,” Taylor said. And as more consoles end up in consumers’ hands, the more games companies such as Sony and EA will be able to sell. “This is just reflective of this part of the industry cycle.”