Earnings Outlook: EA, Activision to lead videogame results

SAN FRANCISCO (MarketWatch) � Videogame publishers will begin reporting results for the December quarter this week, and all eyes will be on Electronic Arts when it kicks things off for the group on Wednesday.

EA A scene from �Star Wars: The Old Republic,� which is expected to be a big factor in EA�s results on Wednesday afternoon.

EA EA �had a major quarter in terms of new releases. Most notably, the company launched �Star Wars: The Old Republic� in late December in an effort to grab a share of the lucrative online multi-player, or so-called MMO, segment that is currently dominated by the popular �World of Warcraft.�

The publisher also released its well-reviewed action shooter �Battlefield 3� along with the latest iterations of top franchises such as �Need for Speed� and �The Sims� during the period.

Analysts believe EA will post adjusted earnings of 93 cents a share on net revenue of $1.62 billion when it reports results after Wednesday�s closing bell, according to consensus forecasts from FactSet Research. The company reported adjusted revenue of $1.4 billion with earnings per share of 59 cents for the same period the previous year.

But �Star Wars� will remain the major story for the company heading into the report. EA�s shares have sold off about 24% since the company�s last report on concerns about lower-than-expected sales and subscriber levels.

/quotes/zigman/71356/quotes/nls/ea EA 14.10, -0.14, -0.98%

The company said last month that it landed more than 1 million subscribers in the first days of launch, though buyers of the game got a free month�s subscription with their purchase, so analysts will be looking for color as to how many EA was able to convert to paid subscriptions when that period closed.

�We believe these concerns are ill-founded, and we expect EA�s earnings report tomorrow to dismantle the negativity bubble that we believe has formed,� wrote Doug Creutz of Cowen & Co. on Tuesday.

Creutz said many estimates are under-counting the copies of the game sold for download over digital channels, as opposed to traditional retail outlets. He believes total unit sales for the quarter were likely 2 million or more, and that EA was able to convert 75% of those to paying subscribers.

Others are less optimistic. Shawn Milne of Janney Capital also believes that about 2 million units of the game were sold, but wrote Tuesday that consensus targets for paying subscribers between 1.5 million and 2 million �appear aggressive given some signs of 3rd party server data/user activity declines and the PC title itself selling at a material discount on eBay.�

Meanwhile, rival publisher Activision Blizzard ATVI �does not post its own results until Feb. 9. Net sales are expected to come in at $2.2 billion, down from $2.55 billion in the same period last year. Earnings per share are expected to be up to 56 cents from 53 cents the year before.

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While Activision had the best-selling game of the year in �Call of Duty: Modern Warfare 3,� it also did not have the additional boost from new content from �World of Warcraft� when compared to last year�s �Cataclysm� expansion pack. A new kids title called �Skylanders: Spyro�s Adventure� may help results in the quarter.

Activision shares took a hit after its last earnings report, as the company reported a larger-than-expected decline in the number of �Warcraft� subscribers. The stock has sold off nearly 12% since that date. Colin Sebastian of Robert W. Baird believes �Warcraft� may show some additional declines, but that the losses have likely �moderated� of late.

�Moreover, it does not appear that �Star Wars: The Old Republic� is the �WoW killer� that some had feared,� he wrote in a note on Monday.

Two other game publishers report results on Thursday afternoon. Both Take-Two Interactive TTWO �had a light release schedule for the period, so most analysts will be looking for color on the company�s pipeline for 2012, which may include the next installment of its blockbuster �Grand Theft Auto� franchise.

THQ Inc. THQI �released its urban action title �Saints Row: The Third� in November to generally strong critic scores. But investors will also be looking for more color on the company�s recently announced plans to exit the licensed kids game business and focus on core titles.