Why Are Investors Selling EA Shares After Earnings?

Electronic Arts (NASDAQ:EA) on Monday reported better-than-expected revenue for its fiscal fourth quarter despite a sharp drop in active subscribers to its Star Wars multi-player game, which only hit the market in late 2011.

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Though fourth-quarter results beat estimates, falling subscription numbers for Star Wars: The Old Republic, coupled with a disappointing forecast for the current fiscal year, are helping send shares lower in after-hours trading today.

EA shares are already down more than 26 percent this year as investors grow increasingly concerned about slowing growth in the new franchise, one of the company’s biggest bets in expanding its digital business.

EA reported net income of $400 million, or $1.20 a share, for the January through March quarter, compared to net income of $141 million, or 45 cents a share, in the year-ago period. Revenue of $1.37 billion was up from $1.09 billion a year earlier. Those results include deferred revenues from past sales of certain game titles, as well as such items as stock-based compensation.

On an adjusted basis, EA earned $56 million, or 17 cents a share, in line with expectations. Adjusted revenue came in at $977 million, compared with $995 million in the same period last year. Analysts had expected adjusted revenue of $958 million, according to a FactSet survey.

Sales in the recent quarter were driven by the hit new release Mass Effect 3 as well as  FIFA Street 4, SSX, and Kingdoms of Amalur: Reckoning, while Star Wars: The Old Republic showed signs of weakening. Analysts had expected the latter to end the quarter with 1.6 million active subscribers. Instead, the Star Wars game had 1.3 million subscribers as of March 31.

Still, EA was able to close the fiscal year with $1.2 billion in digital revenue, and expects to grow digital sales by more than 40 percent in the current fiscal year. However, the company’s overall revenue guidance for the 2013 fiscal period was $4.3 billion, below the $4.52 billion projected by analysts. Its revenue forecast for the current quarter, which ends in June, was $500 million, compared to $581 million expected by analysts.

EA shares were down 9.39 percent in after-hours trading as of 4:35 p.m. EDT. The company’s earnings conference call is scheduled for 5 p.m.

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