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Mobile games industry hits a brickwall as EA Mobile's sales are down for the first time

Chillingo deal placed in stark context

Mobile games industry hits a brickwall as EA Mobile's sales are down for the first time
EA (NASDAQ: ERTS) has announced its Q2 FY11 financials, which reveal EA Mobile's sales were $49 million for the three months ending September 30.

Surprisingly, this was down 4 percent compared to the $51 million of sales recorded in Q2 FY10, which - let's remember - was before the release of iPhone 4, iPad, and the sale of tens of millions of other iOS devices.

This is the first time that EA Mobile's sales have been down quarter on quarter, presumably because of the decline in its core Java and Brew business; something not yet overcome by the rise in smartphone game sales.

It also provides some context for its purchase of iOS publisher Chillingo, for a reputed $20 million.

Indeed, in its financial filing, EA noted, "Chillingo extends EA's App Store leadership and adds an open social gaming platform to EAi's publishing capabilities."

Overall, EA Mobile accounted for 8 percent of EA's total Q2 revenues of $631 million, up from 6 percent year on year.

All these figures are provided using the standard Generally Accepted Accounting Principles (GAAP).

Deep and down

EA Mobile's sales for Q2 FY11 under non-GAAP - which is used to strip out one-off costs and income to try and make year on year comparisons easier - were $49 million, down 2 percent year on year.

EA's GAAP revenue from other portable platforms such as PSP and DS continues to fall. PSP sales were down 15 percent year-on-year to $17 million, and DS down 64 percent to $17 million.

As a combined sector, EA's mobile sales (something it labels Wireless) were $74 million, down 20 percent year on year.

Blood on the books

Overall, EA's GAAP sales were $631 million, down 40 percent year on year, while it made a loss of $201 million, compared to a loss of $391 million a year ago.

Non-GAAP sales were $884 million, with a profit of $32 million, up 68 percent.

EA also announced a plan to restructure key licensing and developer agreements to improve the long-term profitability of its physical game business. It said it expected to incur a restructuring charge of up to $180 million during FY11 as part of the process. Financial benefits are expected to feed through in FY12.

The company expects to make a loss over its entire FY11 with GAAP net revenue predicted as being between $3.35 to $3.60 billion and non-GAAP net revenue $3.65 to $3.90 billion.

EA closed the quarter with $1.66 billion in assets such as cash and liquid investments, down 17 percent from its FY11 Q1 total.

[source: EA]
Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at PG.biz which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.

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