Electronic Arts Beats Estimates

Traders look past a drop in profit.
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Updated from Nov. 2

Shares of

Electronic Arts

(ERTS)

surged Friday, a day after the video-game maker blew past Wall Street's second-quarter estimates for its top and bottom lines while lifting sales expectations for the full year.

Shares were recently up $5.87, or 11.1%, to $58.87.

"This is a great time to be in this business," Warren Jenson, chief financial and administrative officer of EA, said on a conference call with financial analysts. "This is the beginning of prime time for interactive entertainment."

The results suggest he's right. Revenue for the quarter totaled $784 million, rising from $657 million a year ago and plowing past the average analyst target of $672.5 million.

The company's

Madden NFL 07

, which sold 5 million copies in five weeks, and

NCAA Football 07

, which sold more than 2 million copies in the quarter, plus

FIFA 07

and

NBA Live 07

games drove strong sales.

Better execution on the launches, improved product quality, more robust Xbox 360 and Playstation 2 markets, as well as a marketing relationship with ESPN, has helped drive the sports franchise, executives said.

The company also paired up with

Apple

(AAPL) - Get Report

during the quarter to bring games to the iPod.

By sector, North America revenue was up 16% to $512 million; Europe rose 28% to $245 million, while Asia was down 34% to $27 million.

EA earned $22 million, or 7 cents a share, for the quarter, falling from $51 million, or 16 cents a share, in the same period a year ago.

Excluding special items, the company reported a profit of $65 million, or 21 cents a share, compared with $46 million, or 15 cents a share in the year-ago quarter. Analysts surveyed by Thomson First Call forecast 2 cents a share.

"We are well prepared for the holidays on all platforms, including the Xbox 360, Playstation 3 and the Nintendo Wii," CEO Larry Probst, said in a statement. "In the quarter, we plan to release eight titles across multiple platforms and currently have more than 30 next-generation games in development."

Those in development include

Spore

,

Army of Two

, a new

Sim City

title, and games associated with new

Harry Potter

and

Simpsons

movies, among others.

"This was a strong quarter for EA," Jenson said in a statement. "While our industry remains in the midst of transition, the landscape looks strong enough that we are able to increase our guidance range for the year."

For the third quarter ending Dec. 31, sales are expected to range from $1.2 billion to $1.3 billion, EA said. Analysts pegged the company to meet the low end of the range.

Net income will range from 33 cents to 43 cents a share. Without certain items, EA's profit will be between 50 cents and 60 cents a share, in line with the average analyst forecast of 59 cents a share, with the expectation that EA will hit the high end of the range.

For the full year ending in March 2007, EA said sales will range from $2.95 billion and $3.125 billion, above its previous guidance of $2.8 billion to $3 billion. Analysts anticipate $2.94 billion in sales.

EPS will be break-even to a 15 cents, better than the 30-cent loss to break-even previously forecast.

Excluding some items, EPS will range from 55 cent to 70 cents, above the earlier guidance of 35 cents to 65 cents and bracketing the average analyst estimate, which pegged the company to hit the low end at 56 cents.

EA executives said they are working to build their on-the-ground presence in Asia, noting that they have 100 game developers in Shanghai. Building capacity and building local content there should result in more revenue over the long term, the company said.