Electronic Arts Is Down, But Don't Count It Out

Like an NFL team stuck rebuilding, video game giant Electronic Arts (ERTS) announced another lackluster quarter. Pro forma revenue was $1.147 billion, compared with the consensus estimate of $1.13 billion. Pro forma EPS was $0.06, compared with the consensus estimate of $0.07.

More importantly, ERTS is set to add 1,500 more people to the unemployment rosters. Although the company says the firings will save $100 million, this is still like a shitty NFL team releasing an expensive player: the team is still shitty.

To confuse matters more, Electronic Arts has committed to spend $300-400 million to acquire social games producer PlayFish. While the acquisition may be preferable to building an internal division, ERTS has not yet found their sea legs and here they are bringing more passengers aboard.

I have over a decade of experience investing in the video game sector. Although Electronic Arts is down, they have a lot of potential to reemerge. But there is plenty of time to wait and see…

Author's Disclosure: None.

Comments

[spald_fr:]

I've read the five or so articles today on the gaming industry here at SA. No one has mentioned the demographics of the typical purchaser and user of these games. I suppose it's young single males.

Point is, why is the primary customer suddenly ceasing to purchase? Is it the change in electronic platform as many articles state? Is it the lack of disposable income? Have Mom and Dad stopped financing that bedroom in the basement?

The young men are not going to college at the levels of twenty five years ago. Indeed, the ratio of girls to boys nationally at college is rapidly approaching 60/40. If these guys are not going to college and not gaming, what the heck is going on here?

Full disclosure: I successfully completed all levels of Commander Keen (Galaxy) and a few of the Tomb Raider games, although I'm not an investor in this particular industry.

Nov 10 02:11 PM

[StockMaster...:]

Big volume washout on earnings sets ERTS up to look good going into the holiday season. Going through 20 soon

Nov 11 01:20 AM

[Michael Clark:]

It will be at 14 before it goes back through 20, in my opinion.


On Nov 11 01:20 AM StockMasterFlash wrote:

> Big volume washout on earnings sets ERTS up to look good going into
> the holiday season. Going through 20 soon

Nov 11 04:36 AM

[sneaker1404:]

I assume the primary customer is reducing (not outright ceasing) their purchases because of the economic FUD going on around them.

The demographics of gamers has changed, and continues to change. The typical purchaser is still young single males, but there are also a lot of casual gamers (Wii-er's) and former hardcore gamers that are now middle aged, have families and other responsibilities and are also worried about their jobs, and thus buy fewer games.

This too shall pass. Think long term and accumulate now. In 10 years, will there be more people playing or less?

It's a beautiful aspect of the industry and it's future growth. New gamers are born every day (in this country and others), and old(er) video gamers are no longer ridiculed (as much) for being old video gamers.

:)

Full Disclosure : I'm an old video gamer.

On Nov 10 02:11 PM spald_fr wrote:

> I've read the five or so articles today on the gaming industry here
> at SA. No one has mentioned the demographics of the typical purchaser
> and user of these games. I suppose it's young single males.
>
> Point is, why is the primary customer suddenly ceasing to purchase?

Nov 11 10:09 AM