EA Announces Record Gains, 1500 Job Cuts [Nov 09, 2009, 6:46 pm ET] – Share – Viewing Comments
EA Reports Record Q2 Non-GAAP Net Revenue of $1.15 Billion has word of Electronic Arts' fiscal second quarter results, which are in the red in spite of "record" non-GAAP net revenue for the quarter, saying: "GAAP net revenue for the quarter, which includes the impact of deferred net revenue adjustments, was $788 million as compared with $894 million for the prior year. During the quarter, EA had a net revenue deferral of $359 million related to certain online-enabled packaged goods and digital content as compared with $232 million in the second quarter of the prior year. Non-GAAP net revenue for the quarter was a record $1.147 billion, up 2 percent as compared with $1.126 billion for the prior year. Revenues were above street expectations. Sales were driven by the launches of FIFA 10, Madden NFL 10, The Beatles™: Rock Band®, Need for Speed™ SHIFT and NCAA Football 10. GAAP net loss for the quarter, including the impact of deferred net revenue, was $391 million as compared with a net loss of $310 million for the prior year. GAAP diluted loss per share was $1.21 as compared with GAAP diluted loss per share of $0.97 for the prior year." They also shed more light on the job cuts mentioned earlier under a heading "Cost Reduction Plan" Word is:
EA has announced a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities.
This action will result in the closure of several facilities and a headcount reduction of approximately 1,500 positions, of which 1,300 are included in a restructuring plan. The majority of these actions will be completed by March 31, 2010. This plan will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million.
Yeah, my bro-in-law asked if people could buy digital content now that they'd use later, and if so, EA would almost have to defer the revenue for that until such as a point as it was used.
Makes sense... sort of... I guess.
Creston
Makes sense... sort of... I guess.
Creston
Yeah that's basically it Bronco.
Think of it as a bit like buying a MMORPG that comes with a 12 month subscription - say the game by itself is usually $30, a 12 month subs usually $30, the customer starts that free period on 1 November, and the accounting date is 31 December. Say the customer paid them $40.
The game and the subs are each valued equally, i.e. 50% = $20.
Add 2/12ths of the subscription = $3
Therefore recognise $23 this year and the other $17 is deferred until next year.
Now, in EA's case they do not know anything. They don't know what the split is between the game and subscription value, they don't even know how long that subscription lasts for. So you guesstimate - say you think the game lasts for about a year and assume everyone got started in the month they bought the product. Again assumeing a 31 December year end, you'd record 12/12th's of sales in January, 11/12th's of February's, and so on.
BTW, yes this does result in those deferred sales being a liability. That is because the cash is already recorded as an asset.
Think of it as a bit like buying a MMORPG that comes with a 12 month subscription - say the game by itself is usually $30, a 12 month subs usually $30, the customer starts that free period on 1 November, and the accounting date is 31 December. Say the customer paid them $40.
The game and the subs are each valued equally, i.e. 50% = $20.
Add 2/12ths of the subscription = $3
Therefore recognise $23 this year and the other $17 is deferred until next year.
Now, in EA's case they do not know anything. They don't know what the split is between the game and subscription value, they don't even know how long that subscription lasts for. So you guesstimate - say you think the game lasts for about a year and assume everyone got started in the month they bought the product. Again assumeing a 31 December year end, you'd record 12/12th's of sales in January, 11/12th's of February's, and so on.
BTW, yes this does result in those deferred sales being a liability. That is because the cash is already recorded as an asset.
Are any accountancy/legalese experts able to shed some light on EA's reasoning for the hundreds of millions in "net revenue deferral" for digital content? I've read their description ("Electronic Arts is not able to objectively...") several times, but I can't work out what the $359 million figure actually represents. Are they bringing forward expected future revenue, claiming that the costs of development are one-off unusual expenses, or something else?
Here is where they address it:
Change in Deferred Net Revenue (Packaged Goods and Digital Content). Electronic Arts is not able to objectively determine the fair value of the online service included in certain of its packaged goods and digital content. As a result, the Company recognizes the revenue from the sale of these games and content over the estimated online service period. In other transactions, at the date we sell the software product we have an obligation to provide incremental unspecified digital content in the future without an additional fee. In these cases, we account for the sale of the software product as a multiple element arrangement and recognize the revenue on a straight-line basis over the estimated life of the game.
In other words they don't feel that the actual revenue would match simply when the sale happens - it will happen sometime in 'the future' so they defer the revenue.
Take some of those silly kids online games like Webkins - I don't know if they are a part of them in particular but just use them as an example. When you purchase the toy you get the ability to go online and use the toy companies online 'stuff'. They don't know when you will use that, in most cases you have a year. So they are trying to move the revenue to a period when the expense will happen.
I could be totally in left field here - but that is what it looks like to me. Revenue/expense matching.
This comment was edited on Nov 10, 2009, 06:53.
-TPFKAS2S
Re: EA Announces Record Gains, 1500 Job Cuts
Nov 10, 2009, 02:16
Nov 10, 2009, 02:16
"greater focus on titles with higher margin opportunities"
I think people who think this means more good games haven't thought this through. Pursuing higher margins means games that are cheaper to produce, and have guaranteed sales - more sports games, more Sims, more console action games marketed at 14 year olds using lots of tits and ass and explosions.
You can likely forget about stuff like Dragon Age in the future, at least from EA. BioWare worked on it for years before they were bought, EA execs would never have approved such a high-cost high-risk project. And releasing modding tools, so the community can create stuff that might eat into sales of DLC, expansions or future titles? Forget about it!
I think people who think this means more good games haven't thought this through. Pursuing higher margins means games that are cheaper to produce, and have guaranteed sales - more sports games, more Sims, more console action games marketed at 14 year olds using lots of tits and ass and explosions.
You can likely forget about stuff like Dragon Age in the future, at least from EA. BioWare worked on it for years before they were bought, EA execs would never have approved such a high-cost high-risk project. And releasing modding tools, so the community can create stuff that might eat into sales of DLC, expansions or future titles? Forget about it!
Jesus. Fifteen Hundred people? That's quite a "re-structuring"!
“The greatness of a nation and its moral progress can be judged by the way its animals are treated.”
- Mahatma Gandhi
- Mahatma Gandhi
Edit: Are any accountancy/legalese experts able to shed some light on EA's reasoning for the hundreds of millions in "net revenue deferral" for digital content?
Reasons no, but it's fancy bookkeeping to make your numbers seem not as bad as they really are. It's the thing the US government swore to get rid off after Enron, why every single company in the USA now has to deal with Sarbanes-Fucking-Oxley, and yet it happily persists. It's basically shifting money around to show a more positive image to the shareholders.
I've said this many times before, but companies who make a billion + dollars in revenue, and who can't make a profit, are run by absolute idiots.
Edit : I'll ask my brother in law, who's a CPA, to let me know what he thinks.
Creston
This comment was edited on Nov 10, 2009, 00:02.
Reasons no, but it's fancy bookkeeping to make your numbers seem not as bad as they really are. It's the thing the US government swore to get rid off after Enron, why every single company in the USA now has to deal with Sarbanes-Fucking-Oxley, and yet it happily persists. It's basically shifting money around to show a more positive image to the shareholders.
I've said this many times before, but companies who make a billion + dollars in revenue, and who can't make a profit, are run by absolute idiots.
Edit : I'll ask my brother in law, who's a CPA, to let me know what he thinks.
Creston
This comment was edited on Nov 10, 2009, 00:02.
I blame the used game market. It's contributed to the death of so much potential at the expense of someone not even involved in making games getting huge profits. That's why I don't buy used games and it's why I stopped letting people borrow my games or borrowing games from other people. If I play it, I pay for it.
And you dont think absorbanent costs aren't part of the problem? Movie studios are dealing with the same dilemna. The inflated bloated costs to make games or movies is getting ridiculous. Its like the state of CA. You burn though money like it grows on tree's but of course its never an expenditure issue its always an issue that there isnt enough money and then you blame the used market as a cause. It's questionable when a studio pays millions just to get some celebrity voice over or pay outrageous sums for fancy digs, bean bag chairs and the best of everything for top talent. You force costs higher and want to blame the used market because you cant reap the highest price for your product.
Some of the best new games or movies I have seen this year came from smaller budgets from relativly new or unknown studios. How do they do it on whats considered a low budget? On the game side I've been impressed by Shattered Horizons, on the movie side I far more enjoyed District 9 which cost 30 Million to make versus Transformers big budget of 150 Million.
This comment was edited on Nov 9, 2009, 23:37.
public companies are controlled by quarterly earnings. It has nothing to do with the actual state of the company. This is what sucks about public companies. If you want a great job go work for a private company. Heck I'd take a pay cut to work for a smaller private company then a big public goliath.
It's not evil, but it is only good for EA. It hurts us because the "little" games don't have much chance. Risk averse public company fun.
The money they use to buy the IP goes, very likely, to start a new company where they make new ip's and so the cycle of creation and destruction continues.
Perpetual debt is slavery.
Another words, they are cutting out the slackers.
its supposed to be "IN OTHER WORDS" you braindead puppet
I was thinking robot, or tool, but puppet works too.
This comment was edited on Nov 9, 2009, 21:14.
"...and now with sports. The Cointen Spinky Whompers flumped the Floing Boing Welfencloppers, 70-fluff to 40-flabe. At the tone, the time will be 26 railroad."
I blame the used game market.
That would make about as much sense if you instead said you blame Santa Claus.
That fat jolly bastard is pure evil I tell you!!!
Isn't this basically how we lost Origin and the other companies/IPs gobbled up by them?
EA buys out a dev house. The games from that dev never sold trillions of copies and didn't compete with <insert endless sports recycle job here>. Thus EA's acquired IP from those small companies is effectively buried for eternity.
It's not evil, but it is only good for EA. It hurts us because the "little" games don't have much chance. Risk averse public company fun.
EA buys out a dev house. The games from that dev never sold trillions of copies and didn't compete with <insert endless sports recycle job here>. Thus EA's acquired IP from those small companies is effectively buried for eternity.
It's not evil, but it is only good for EA. It hurts us because the "little" games don't have much chance. Risk averse public company fun.
Re: EA Announces Record Gains, 1500 Job
Nov 9, 2009, 19:38
Nov 9, 2009, 19:38
I'm quite honestly surprised that EA have more than 1500 staff, let alone that they're cutting that many jobs. Even if you count the dozens of studios they own it still seems a lot and I'm not surprised they're opting for a considerably trim. Regardless of the economic climate it's a good idea to minimise expenses. And with a higher concentration of talent (with the deadwood being the first to go) we may see improvements to the quality of their output. I mean, recent titles like Dragon's Age and The Beatles: Rock Band really put the competition to shame and demonstrate that having devotion to a project, and the prerequisite talent, really pays off.
"The price of freedom is eternal vigilance."
"EA has announced a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities."
In other words, "we have so many people buying Sims expansions and other crap that we spend minimal resources on, we'd rather focus on things like that then any new IP"
In other words, "we have so many people buying Sims expansions and other crap that we spend minimal resources on, we'd rather focus on things like that then any new IP"
They made a profit, that is what companies do!
Actually, it booked a loss ("GAAP net loss") of $391 million for the past 3 months - about 25% higher than the same time last year.
Their claim of profit ("Non-GAAP net income") to the tune of $13 million is basically EA's way of saying "if you ignore all of the unexpected costs - like the restructure (and hundreds of millions of dollars in other costs) - you could kind of say that we made money!".
Edit: Are any accountancy/legalese experts able to shed some light on EA's reasoning for the hundreds of millions in "net revenue deferral" for digital content? I've read their description ("Electronic Arts is not able to objectively...") several times, but I can't work out what the $359 million figure actually represents. Are they bringing forward expected future revenue, claiming that the costs of development are one-off unusual expenses, or something else?
This comment was edited on Nov 9, 2009, 20:08.
Y'all need to learn how to read financial reports. That means you too, good sir Blue.
EA listed record net revenue. Revenue is not profit.
In fact they posted record *losses* of $391 million for the second quarter of fiscal 2009. That is why they are cutting employees.
Here's some simpler English on the subject:
http://www.marketwatch.com/story/electronic-arts-sets-1500-job-cuts-as-losses-grow-2009-11-09
EA listed record net revenue. Revenue is not profit.
In fact they posted record *losses* of $391 million for the second quarter of fiscal 2009. That is why they are cutting employees.
Here's some simpler English on the subject:
http://www.marketwatch.com/story/electronic-arts-sets-1500-job-cuts-as-losses-grow-2009-11-09
So as a result of 'record gains' which put tons of money into the pockets of shareholders and execs, they are cutting the staffers who did all the work! Isn't capitalism wonderful?
I know the amplitude of time.
As someone who's been in the industry for over 11 years, I've never been happy with being laid off. A few months of unemployment can set you back years in terms of finances.
Frankly, studio shut downs are a not a good thing for anyone. Most people I've worked with who were axed as part of a team or a project made a decent game and were primed to make a much better game. Never given the opportunity.
I blame the used game market. It's contributed to the death of so much potential at the expense of someone not even involved in making games getting huge profits. That's why I don't buy used games and it's why I stopped letting people borrow my games or borrowing games from other people. If I play it, I pay for it.
Frankly, studio shut downs are a not a good thing for anyone. Most people I've worked with who were axed as part of a team or a project made a decent game and were primed to make a much better game. Never given the opportunity.
I blame the used game market. It's contributed to the death of so much potential at the expense of someone not even involved in making games getting huge profits. That's why I don't buy used games and it's why I stopped letting people borrow my games or borrowing games from other people. If I play it, I pay for it.
Another words, they are cutting out the slackers.
its supposed to be "IN OTHER WORDS" you braindead puppet
yea I know, I was at a studio that was laid off due to inept management. All the employee's got better jobs within a few months at most so I guess people are happy to re-hire slackers..
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