Electronic Arts lost 400,000 subscribers of "Star Wars: The Old Republic" in the fourth quarter, dealing a blow to its efforts to rely on the new game for growth and sending the game maker's shares down as much as 10 percent.
EA has poured more money and firepower into "Star Wars: The Old Republic" than it has any game in its 30-year history. Wall Street is closely watching to see if the game can succeed, since it could bring EA riches for years to come. If it struggles, EA's earnings will be hurt in future quarters.
Interim Chief Financial Officer Ken Barker said in an interview that EA is pleased with the stability of the game, but it wants to boost the subscriber base with the release of two expansion packs this quarter that deliver players more content.
The subscriber numbers EA reported on Monday missed some analyst estimates. Brean Murray analyst Todd Mitchell was expecting 1.5 million paying subscribers.
"'Star Wars' is a nice role playing game but people are playing through it and leaving," Mitchell said.
"Star Wars: The Old Republic" is EA's foray into massive multiplayer online games - where thousands interact in an online world at the same time.
The launch was in line with EA's strategy, like many other video games companies, to offer a wide range of games played over the Internet, to compete with upstarts such as Zynga, which develops simple, casual games.
The game was meant to be "a big growth engine" as the company pushes aggressively into the digital space, said Mike Hickey, analyst at National Alliance Capital Markets.
The Redwood City, California-based firm has not divulged how much it spent on creating "Star Wars". But analysts estimate between $100 million and $300 million was spent on the game.
BLIZZARD OF COMPETITION
EA had been hoping to take on its biggest rival, Activision Blizzard, which had more than 10 million subscribers to "World of Warcraft" last quarter. "Warcraft" is the 7-year-old Internet game that is Activision's most profitable franchise.
Video game companies such as EA and Activision have been trying to turn gamers from one-time purchasers into subscribers who generate a steady and predictable revenue stream to boost business and protect against economic uncertainty.
Hickey said Star Wars would face more competition from Activision's expansion packs for its "World of Warcraft" game.
"They're (EA) going to try to continue to put out content and hold the subscriber base that they have. But I think it's going to be a futile effort at this point," Hickey said.
EA now expects earnings to be in the range of $1.05 to $1.20 per share for the year on revenue of $4.3 billion. Analysts on average are expecting EPS of $1.12 on revenue of $4.49 billion, according to Thomson Reuters I/B/E/S.
Sterne Agee analyst Bhatia said the company's earnings forecast was light and was likely affected by the performance of "Star Wars."
For the fiscal first quarter, the company expects to post a loss of 45 cents per share to 40 cents per share.
Adjusted for the deferral of digital revenue and other items, the company said profit fell 33 percent to $56 million, or 17 cents per share, which beat Wall Street estimates by a penny. Adjusted revenue fell 2 percent to $977 million, which beat analyst estimates of $957.85 million, according to Thomson-Reuters I/B/E/S. Its futuristic game "Mass Effect 3" helped drive sales in the quarter.
The company's digital revenue hit $1.2 billion in the fiscal year. Its shares dropped as much as 10 percent in after hours trading on Monday, but recovered slightly later to trade down about 5 percent at $14.36.
(Reporting By Liana B. Baker in New York and Malathi Nayak in San Francisco; editing by Andre Grenon, M.D. Golan and Himani Sarkar)