August 4, 2010 / 6:47 PM / 7 years ago

Electronic Arts' shares rally on results

SAN FRANCISCO (Reuters) - Shares of Electronic Arts ERTS.O rose more than 7 percent on Wednesday, as analysts and investors saw signs of progress in the video game publisher’s quarterly results.

EA publishes storied game franchises such as “Madden” football and “The Sims,” but the company had fallen out of favor with investors as it worked to overhaul its bloated cost structure.

EA on Tuesday showed signs that its efforts were bearing fruit, posting better-than-expected results for the fiscal first quarter that ended June 30, and reaffirming its full-year outlook.

Shares of EA rose 7.2 percent to $17.34 in afternoon trading on Nasdaq.

The report helped buoy other names in the gaming industry, with shares of Activision Blizzard (ATVI.O), Take Two Interactive (TTWO.O), THQ THQI.O and game retailer GameStop (GME.N) all posting strong gains.

Analysts cited EA’s progress on cost-cutting, and said the company is starting to deliver on its goal to make “fewer, bigger, better” games.

“We believe the company’s focus on quality games with a leaner cost structure is showing signs of positive momentum into FY11,” UBS analyst Brian Pitz wrote in a research note.

Pitz maintained his buy rating and $23 price target.

EA has cut jobs and expenses, and winnowed its game portfolio to focus on big-name titles.

Overall operating expense fell 13 percent in the June quarter, and EA’s headcount was down roughly 1,200 from the previous year.

MKM Partners analyst Eric Handler said he wouldn’t be surprised to see a relief rally in EA shares, with some investors assuming the fiscal 2011 outlook is conservative.

Handler, who has a neutral rating on EA, said he would take a more optimistic view for the year, but said the company still must prove it can execute.

“Investors are likely to take a positive view toward Electronic Arts’ 1QFY11 results and unchanged guidance, but FY11 has a long way to go,” he wrote in a note.

The company affirmed its fiscal 2011 forecast for earnings, excluding items, of 50 cents to 70 cents a share on non-GAAP revenue of $3.65 billion to $3.9 billion.

Wall Street is expecting a profit of 65 cents a share on revenue of $3.8 billion.

ThinkEquity analyst Atul Bagga said EA is currently trading gat 16 times forward earnings, excluding cash.

“We believe (this) understates the company’s solid franchises, strong competitive positioning, leverage in the model, strong CY10 pipeline, leaner cost structure, improving execution, and aggressive digital strategy,” Bagga wrote.

Reporting by Gabriel Madway; Editing by Tim Dobbyn

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