Electronic Arts Misses (Update)

Ramped-up expenses hurt the bottom line.
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SAN FRANCISCO -- Video-game publisher

Electronic Arts

(ERTS)

narrowed its loss for its first fiscal quarter, but missed analyst expectations.

The company reported a loss of $95 million, or 30 cents a share, in the quarter vs. a loss of $132 million, or 40 cents a share, a year ago.

Excluding charges, EA lost $135 million, or 42 cents a share, compared with a loss of $69 million, or 22 cents a share, a year ago.

Revenue rose 41% to $609 million from $431 million a year ago.

Analysts polled by Thomson Reuters were expecting a loss of 34 cents a share on revenue of $639.8 million.

Sales were driven by the launches of

Battlefield: Bad Company

,

UEFA EURO 2008

,

Burnout Paradise

and continued strength of its game

Rock Band

launched in partnership with Harmonix and

Viacom's

(VIA) - Get Report

MTV Networks, said EA. The

Battlefield: Bad Company

game sold 1.6 million copies.

Including all charges, EA reported revenue of $804 million, up from $395 million the year before. During the quarter, EA had a net benefit of $231 million related to the recognition of deferred revenue for some online enabled games.

Shares of EA were down $1.30, or 2.7%, to $46.10 in recent extended trading.

Despite concerns of a weak economy, Chief Financial Officer Eric Brown told

TheStreet.com

that he expects no impact on video games sales in the upcoming holiday season.

"The video games industry follows a cycle that is driven by hardware and games for a console's installed base," said Brown. "So we have increased our internal assumptions for industry growth rate from 15% to 20% this year to more than 20%."

Among the reasons that EA's numbers in the first quarter diverged from analysts' estimates could be the rate at which expenses were ramped up and the change in the company's accounting policy for bonus expense, said Brown. The accounting change led to a $26 million increase in operating expenses from a year ago, he said.

During the quarter, EA generated $90 million in digital direct-to-consumer sales, up 21% from a year ago. The company's mobile games business grew 33% from the year before.

For the fiscal year, EA said it expects revenue to range between $5 billion and $5.3 billion Earnings, excluding items, is expected to range between $1.30 a share and $1.70 a share. Analysts are expecting earnings of $1.59 a share on revenue of $5.15 billion.

One of EA's biggest division, EA Sports, is likely to see some turbulence, said John Riccitiello, CEO of EA. Pre-orders for two upcoming games in the company's sports franchises

Madden NFL

and

NCAA Football

are down, he said. Pre-orders are a closely watched industry metric as a sign of consumer interest in an upcoming release.

EA said it has tried to innovate on

Madden NFL

, which is set to celebrate its 20th anniversary this year. The company has built an adaptive learning capability to the game to make it easier for novice players to better understand the game and learn it.

EA plans to ratchet up its marketing for

Madden NFL

and said the company is confident of the game's sales this year. "When we look at the activities we have planned over the next few weeks, we are incredibly optimistic that we will catch up (in pre-orders)," said Riccitiello.

EA's biggest rival

Activision Blizzard

(ATVID)

will report its earnings Thursday, although the company

pre-announced

its results earlier this month.

Smaller competitor

THQ

(THQI)

will report its quarterly results Wednesday.

EA is in the midst of a $2 billion hostile buyout attempt of the maker of the

Grand Theft Auto

franchise,

Take-Two Interactive

(TTWO) - Get Report

.

EA has extended the tender offer for Take-Two thrice and is currently awaiting regulatory review of the deal. The company declined to offer any new details on the process.