The stock was trading at around $11.20 in after-hours trade, from a close of $11.02 on the Nasdaq.

"They think their shares are undervalued. I suppose it could be interpreted to mean they believe there's good visibility to hit targets for the rest of the year," RW Baird analyst Colin Sebastian said.

The company's executive team has come under intense pressure as its stock touched historic lows in recent weeks.

Sterne Agee analyst Arvind Bhatia said that the company has announced and executed a share buyback before. "This is an opportunity for them to return some money to shareholders."

The board authorized the $500 million share buyback with an open time frame, Chief Financial officer Ken Barker told analysts on an earnings conference call.

Publishers are struggling to sustain revenue growth as gamers migrate steadily to casual and social games online or on mobile devices.

Electronic Arts, which has been expanding its mobile and online gaming business, said on Tuesday its net digital revenue jumped 55 percent.

In early June, the company introduced a new service for players of "Battlefield 3" with a one-time fee of $50 this summer to boost its online sales and gain ground against its bigger rival, Activision Blizzard, which sells the top-selling game title "Call of Duty."

This "Battlefield 3 Premium" service generated $37 million in revenue in June, Barker said. "We will recognize these sales as revenue in the fourth quarter when we release the fifth expansion pack entitled 'Endgame.'"

EA's smaller competitor, Take-Two Interactive Software, also reported earnings on Tuesday. The company that publishes the hit "Grand Theft Auto" posted a net loss and 32 percent drop in revenue in its fiscal first quarter, due to weak sales of its new title "Max Payne 3" and "Spec Ops: The Line."

Take-Two's stock was trading at around $8.60 in after-hours trade, down from a close of $8.78 on the Nasdaq.

For the three months ended June 30, Electronic Arts posted overall revenue of $491 million, compared with $524 million a year ago. Net income dropped to $201 million, or 63 cents per share, compared with $221 million, or 66 cents per share a year ago.

Excluding certain items, it recorded a loss of 41 cents a share, beating by a penny an average forecast for a 42-cent loss, according to Thomson Reuters I/B/E/S.

For fiscal 2013, Electronic Arts, which battles Activision Blizzard Inc and other publishers for a slice of a decelerating video games market, reaffirmed its outlook for earnings excluding items of $1.05 to $1.20 per share.

STAR WARS GOING FREE-TO-PLAY

On Tuesday, EA also announced it would offer a free-to-play option of its "Star Wars: The Old Republic" game, hoping to staunch gamer losses.

In June, the company announced that it would offer the first 15 levels of its "Star Wars: The Old Republic" online game for free.

"We saw a lot of good traction there so we decided in the fall we would provide an opportunity for consumers to play the game free-to-play with some restrictions with an experience through micro-based transactions," Barker told Reuters.

The company has struggled to get the massively multiplayer role-playing game based on George Lucas' science-fiction movie off the ground since its December launch.

Company executives told analysts that "Star Wars: The Old Republic," had below a million active subscribers, down from 1.3 million a quarter ago.

(Reporting By Malathi Nayak; Editing by Bernard Orr)

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