Analysts mixed on EA holiday flop

Wedbush's Pachter says EA "lacks introspection" as other industry watchers predict publisher will see significant revenue gains in 2010.

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Electronic Arts has given investors very little to feel confident about in the past couple of months. After posting a second-quarter $391 million loss and a 17 percent staff reduction in November, EA said yesterday that it would not be hitting its revenue forecast of $3.6 billion to $3.9 billion for the fiscal year ending March 31, 2010. Instead, revenues are expected to come in at $3.6 billion to $3.675 billion, news that sent the publisher's stock tumbling in next-day trading by nearly 8 percent.

The Saboteur couldn't help EA's holiday performance.

Today, a number of analysts responded to EA's announcement, offering withering criticism alongside an optimistic outlook. Perhaps most vociferous in his criticism was Wedbush's Michael Pachter. Speaking to the Associated Press, Pachter said, "This company lacks introspection. Their core business is not performing well and they can't explain why." Officially, EA said that its revenue shortfall came as a result of an underperforming European market and a shift toward lower-margin distribution products, such as the EA Partners-published Left 4 Dead 2 and Rock Band.

Pachter also took exception to EA's industry guidance for 2010, which the publisher said yesterday would come in flat to down 5 percent. "We think that EA management is somewhat shell-shocked by its second holiday preannouncement in two years, and think that the negative industry growth forecast was made out of an overdeveloped sense of vigilance about not making the same mistake for three years in a row," he said.

"The game lineup in 2010 is vastly improved over 2009, with at least double the number of big sellers in the first half, and with a solid Wii release schedule likely to contribute to stronger tie ratios for that console," Pachter continued. "On balance, we think that 10 percent growth is highly likely, and think that EA's initial forecast will prove to be way too low. Thus, we think that EA's overall revenues will likely rise by $300 million, and think that the company's pessimistic industry forecast is merely a function of its desire to under promise so that it is not in a position to preannounce negatively once again next holiday."

FBR Capital Markets' Heath Terry also saw EA's poor holiday performance as a reflection of what consumers actually wanted. "The failure of products like Saboteur, Brutal Legend, and [Dead Space: Extraction] to gain traction with consumers remains the biggest concern, as the company launches five new products in the March quarter and enters fiscal 2011 with little product visibility," he wrote.

Still, Terry believes that EA has significant potential in 2010, thanks to investments in its digital distribution business and a strong product lineup that includes a new Medal of Honor, Sims on consoles, Dead Space 2, and its EA Sports slate. "We believe that, at current levels, with a stronger, more focused release schedule, a growing digital business, and expectations at a more reasonable level, the risk-reward [ratio] is favorable," he said.

Pacific Crest's Evan Wilson also believes EA is primed for a significant upside in 2010, though a contributing factor in that growth stems from the publisher's deep layoffs and other cost-cutting measures. "We believe margins and [earnings per share] will be higher due to (1) continued growth in its digital services businesses, (2) 'sharply' lower distribution revenues, and (3) the elimination of over 20 percent of its underperforming head count," Wilson said.

On the other hand, Signal Hill Capital Group's Todd Greenwald believes that those cuts, including "over a dozen" unannounced games, will adversely impact EA's revenue during its 2011 fiscal year, which runs April 1, 2010, to March 31, 2011. Notably, EA believes that it will not see a contribution from BioWare's highly anticipated massively multiplayer online role-playing game Star Wars: The Old Republic during the period.

"We continue to expect EA to endure another difficult year in [fiscal year 2011], as a result of a shrinking slate of titles, fewer distribution deals, weak retail environment, with all of this only slightly offset by a rapidly growing digital business," he wrote. Greenwald also expects the publisher to see a significant drop in its distribution revenue, "as EA will likely stop publishing other companies' titles like Rock Band and Left 4 Dead."

Discussion

79 comments
bagehi
bagehi

Just looking at the IPs they released in 2009, it shouldn't shock anyone that 2009 was a flop. 2009 was littered with hastily thrown together DLC and unimaginative sequels.

Carpe_Noctum
Carpe_Noctum

Lack of quality. At least that is how I feel when I play a EA game. Like Dauntes' Inferno demo, which while-some what fun, just really lacks polish and a real quality feel.

thenephariouson
thenephariouson

EA need to display alot more originality, Saboteur and Dead Space were a good start, heres a wacky thought, why dont they stop regurgitating the same old pap year after year and concentrate on new IP's?

solidsnake7882
solidsnake7882

Every game company right now is seeing losses because of the economy. I hate these analyst articles because all they focus on is the negative and they make it sound like the end of gaming is near. That will never happen there will always be games companies just need to focus more on making quality games rather than rushing and getting crap games out.

RawhideSphinx
RawhideSphinx

Also take a year off of the sports franchises and have roster updates, you may just excite people and sell more.

RawhideSphinx
RawhideSphinx

EA has been coming out with some of my favorite titles, Dead space, Dragon age, keep them coming and forget about the Wii, just my soccer mom games for the Wii. And keep the good games for the real consoles. Can't wait for Dead space 2, instant buy.

Gruug
Gruug

paullywog: While I totally agree with your comment regarding "quality over quantity", I have to take issue with the idea that Modern Warfare 2 was a "great" game. Yes, MW2 has some great features and can be fun to play. However, it is also flawed by poor match making and the great number of cheats and hacks across all platforms. MW2 sold more on the hype but would never had done so well if players knew what they were getting ahead of time. Activision is just as guilty of producing poor quality as EA (if you use MW2 as the gold standard).

MNBeta03
MNBeta03

Cont... They need to continue there hand-offs approach to the acquired IP. I know the EA big-wigs are thinking that the key to success will be getting into their acquisitions and LEANing them out, making them more efficient... every big business thinks this way. Truth is the acquisitions are the only thing keeping EA afloat (example - Bioware's DAO was a huge success) and if the mess with them they may damage the business beyond repair and find themselves as the one's being acquired, only they are so big they would be dismantled and used for parts. They also need to stop trying to grow thru acquisition, as they are just grasping for straws... Another fatal chronic symptom of large corporations. Re-invent your sport franchises... leave your acquistions alone to come up with innovative content, choose more wisely. This aint rocket science.

MNBeta03
MNBeta03

Cont... EA may be better served to go with a longer life cycle on sports games and seek revenue on competitive managed leagues/ladders, customization content (that doesn't impact performance - ala Little Big Planet), and maintainence DLC like roster updates. This would allow for a longer development cycle on the next generation potentially allowing for greater discrimination in gameplay of each generation, justifying purchases of the latest versions to the consumer. Longer life cycles would also increase the games replay value spurring sales. I think there are a lot more people that would pay $10-15 for an annual roster update than $65/year for the new game. Not to mention roster updates require a lot less development as the infrastructure is already in place and I would imagine this is a lower risk/higher margin option than a new game every year and it could help them bring some of the franchises that obviously were not worth annual revisions back into the mix.

MNBeta03
MNBeta03

EA's biggest hurdle is the lack of innovation in the sports games market. Sports was EAs ticket to their success and they have not adapted their business model to push their market. Its time for some innovation on this front... Think outside the box. Each new version is less and less different from its predecessors making consumers less likely to buy. I also think consumers are also feeling a little ticked about the pay content for games like Tiger Woods... it used to be a badge of honor if you acquired in game gear, it was a testament to your skill. Now anybody can pay for the top equipment.

noodles297
noodles297

@ paullywog Well I think many EA games are far better than MW2. And no I'm not just a bandwagon MW2 hater, I loved the first one and all the previous ones on PC, but the latest is trash. Especially on console. EA really doesn't make terrible games anymore like they used to. At least not consistently. But they don't make AAA titles either like Halo and unfortunately what CoD has become.

Colepachi
Colepachi

Dead Space 2 :))))) When that gets released EA wont need to worry.

paullywog
paullywog

i buy ea games when they're $5 on steam (mirror's edge, battlefield 2). i just don't see most ea games worth the full price. they make good games, but not great games. i think if ea focused on quality over quantity they wouldn't have "holiday flops". after all, one great game (mw2) can make 1 billion in a few short months.

firehawk998
firehawk998

The Patchers prediction never ceases to amaze me. Long Live Patcher.

ZedX-14Pilot
ZedX-14Pilot

Could this article say anything more without actually saying anything at all? Lame article.

Quietpower09
Quietpower09

Just release Mass Effect 2 and your sales would go up, EA.

daabulls23
daabulls23

What I get from this article: "EA may see growth, but it may be difficult for them so they might see sales slip." That's amazing analysis.

schnarr
schnarr

EA is a "bottom line first" company and has little tolerance for teams that need to slip deadlines to improve quality, so when EA bought Bioware and Pandemic I feared the worst. So far Bioware has weathered the storm (with the slip of Dragon Age), but Pandemic got the axe with a game that could have used a couple more months of polish (The Sabeteur). Pandemic itself was originally funded by Activision and quality and polish of their earlier games that I played was quite good (Full Spectrum Warrior, Star Wars Battlefront). I don't know why people have issues with Activision/Blizzard, as I think they have some of the best quality in the industry. Most of the buggy Activision/Blizzard games I've played were actually developed by outside developers.

Cruorem
Cruorem

There seem to be a lot of comments that are treating this articles as the herald of EA's downfall which it definitely isn't. All games companies are not making profits like they used to which is to be expected with the world economy recovering from the depression it was in. EA may have to cut studios and jobs but it'll still be a while before it can collapse, it's too big. And in the time it would take for it to collapse it's likely that their sales will pick up again. Thus it will chug onwards.

ebookerd1
ebookerd1

EA did it to them selves with the whole one system platform. The only problem with that logic is nothing new with ever came from having only one system on the market. When there is only one platform you have no competition and games don't get better or more interesting. EA is not making better games just buying more companies and killing the market. Gamers want quality and fun factor not just the 90th repeat on the same game. Get inventive and people with buy you crap. And Make Madden better it has been crap for 4 years since you got the exclusive rights make it worth it for me to buy it. No competition same sorry game enough said!!!!.

parasiteman
parasiteman

Well, what can I say, EA got money hungry and thought they were special and thought they could sell everything because it had EA on it. You're not like for example square-enix, because you sell that many games a year. Now you have to pay, but I hope you learned from this. Don't be that money hungry, give your games all the attention and make them as good as they where when the money came in. Pay attention to viewer games with more quality, then everything will be ok. Activision is now the new EA and they think that they can sell everything and make the same games every year over and over and over. But eventially they will get punished for this to

mrzero1982pt2
mrzero1982pt2

@tremor33 i agree with that statement, but ea also has a long and ungodly track record of being the disney of gaming. they see something which will give them competition, they buy it, look at what they did with ubisoft and take two, one they have 20 or 30 percent of, and one stood firm and said go away loser. the only companies under ea which still make great games are the ones with the cutzpah to stand up to ricitello and say NO when they do not want ea to interfere. perfect example? bioware. criterion still makes great games with tons of fanfare(burnout paradise) without interference, and now making a new need for speed game, finally conforming :(. the ea sports games are disappointing . owning madden 10, the ultimate team addition is fun, but why should i get something promised that is free to only pay to get "coins" to buy cards? why would i buy a perk on an ea sports game for a crappy player to bolt down the field/court/rink when he is averaged 2? ea just needs to sit down with gamers and see what gamers want instead of shoving it down our throats

eoj
eoj

EA wanted the game industry to go through them and it has back fired in there face. Thats why they were buying all of these game studios. And now people suffering because of it. The Evil empire is falling. I just hope Bioware does not get hit hard because of EA slump. Bioware is a good company and they produce good games. They have not really had any flops except for that sonic game.

jazilla
jazilla

I can't wait for the GameSpot report on the truck loads of cash flowing into EA's coffers via a little game coming out soon titled: Mass Effect 2. Talk about a shrewd purchase on EA's part. Then you put the good Doctors in charge of things. EA is just getting started after their restructuring is all.

firehawk998
firehawk998

Even though EA these days are trying to reinvent themselves . The sins of the past will not let them go. I remember when EA used to be this money hungry company that used to release half finished games, sport titles on a yearly basis with no significant update and ruining great franchises ( Ultima and the Goldeneye). Lets not get started what they try to do with DRM. A combination of these left a bad impression on many people so much so that anything made by EA ( not published) is being avioded like the plaque.

eoj
eoj

I'm glad 2K games did not give into EA even though 2K is having some financial problems themselves. They will better off in the long run.

Rottenwood
Rottenwood

If they need some short-term revenue, perhaps they could try taking their core franchises and releasing them once a year while making only token changes to the design, therefore generating solid income while limiting the amount of development time and money... Oh, wait. Never mind.

MushroomSaint2
MushroomSaint2

[This message was deleted at the request of a moderator or administrator]

snake289
snake289

@ocman1 Nowhere near as bad as Activision trust me.

ocman1
ocman1

Junk games, poor support, and terrible track record. Anyone who has experienced the "bad" side of EA should not be surprised.

collingtonuk
collingtonuk

As many of you have said its no great surprise or shame that they are having such a hard time. For years they have been shoving out unfinished, rushed games and tired old franchises. For years they have shown their customers contempt, more interested in hitting release dates than finishing the game. Good riddance.

OldStupidGeezer
OldStupidGeezer

@SDBusDriver1979 i really used to hate EA but you make a good point, they are trying new things, and thats great. im a die hard nintendophile, and i even passed on dead space. im really sick of on rail shooters, but first person shooters on the wii play amazingly. the play control is great. dead space should have been a prequel like they wanted but done in a FPS. i picked up resident evil umbrella chronicles, and it was boring. you kept playing the same few levels for a few minutes then its over. thats the game that made me decide to never pick up another rail shooter

long0110
long0110

Like some of you. I've been gameing for quiet some time. iv seen EA grow from its biggening till now. iv seen how this company started screwing gamers out of their hard earnd cash for mediocre titels for a long time. its about time EA realized that we wont take it no more!!! Go back to the old days when you just cared about making great games for great gamres.

SDBusDriver1979
SDBusDriver1979

Really unfortunate for EA whose come a long ways from where it was at 5 years ago. Trying new franchises genres, creating new franchises, and adopting other franchises to try to innovate profit and change from its overall negative image of the company. EA has little to no influence on how Left 4 Dead or Rock Band is made other than them making an physical disc and provide servers to run multiplayer and dlc. They picked up Brutal Legend when Activision left it waste side and gave it a chance. On the otherside EA completely walked into the no sales for Dead Space Extraction. When the entire game press says another light gun shooter with zero interest and then try to convince them that it wasn't; how are you even going to try to sale the game to the average Joe Blow gamer who would only look at it for 5 seconds before looking for something else. _ What probably makes me angry to most is that Activision made the right call on dropping Wet, Ghostbusters, Chronicles of Riddick: Assault on Dark Athena, 50 Cent Blood on the Sand, Leisure Suit Larry: Box Office Bus. Since those titles did at most was decent sales. I wished people would cut some slack to EA for trying something new. Where as Activision is the new EA.

leonheart_z
leonheart_z

hopefully Activison/Blizzard next....

Shadow_th
Shadow_th

Well screwing up great franchises and quality small dev companies can only get you so far.

spOOoOOn
spOOoOOn

Though like most I'd rather have them spend all their time and resources into great games like Left4dead, mass effect, dead space etc... The stupid simple fact is that those horrible cheesy once-a-year derivatives such as FIFA and Madden are the best selling series in the world. I have a hard time believing they'll give up their cashcows, especially having secured licensing rights. They just want to do everything while they should focus.

badtaker
badtaker

But Left 4 dead 2 sold 2 millions. L4D2 sales >>>> any EA games

DM2438
DM2438

Too many uninteresting games. Who the hell wants to play Saboteur on a good day, not me. Brutal Legend is just something I never had interest in, seems like a immature game for teenagers or immature adults. I am not making fun of peoples preference, that is just the best way I could explain this game in my eyes. I will definitely buy the next Dead Space and Medal of Honor, I would buy Mass Effect 2 and Left4Dead, but I don't have an Xbox. As far as sports games go, I will leave that type of activity for real life exercise, not gaming, just my preference.

hot_shot_9
hot_shot_9

Keep making Fifa and Madden and retart Rugby.

neonblueshadow
neonblueshadow

Madden and FIFA actually make EA a lot of money every year, that hasn't really show any weaknesses. their sport franchises are in large part their steady cash crops. Although sometime in 2006-2007 EA's bad image amongst hardcore gamers finally caught up with the casual sphere and is affecting them is a major way. The other thing is, original IP from EA won't be accepted well for along time, they don't have any gamer's trust left, because historically all their good IPs were started by good smaller independant studios which were later bought by EA: bullfrog, origins, maxis, DICE, Bioware etc. Only recent original IP from EA to get attention was Deadspace, everyting else sells because they're done by a EA owned studio thatis trusted, not EA itself

k0r3aN_pR1d3
k0r3aN_pR1d3

I don't like investing in video games. Too rickety, too easily swayed, too polarized.

HCL2
HCL2

EA games, like others, are in a hot water now, perhaps they should think of plausible ways to tackle this problem or the gaming industry will suffer for years to come from the consequences of industry collapse.

Gen007
Gen007

while EA has come a long long way theres still alot of work to be done. Its really not all that complicated, make good games and dont screw over the customers/fans. They have proven that they are capable of that but still more times than not they disappoint. Quite frankly i think it stems from the company being so large.

supermex2109
supermex2109

I have to make an EA account to play NFS Shift on xbox live..........I think that says it all. That is how far they have lost touch with gamers. Why is my gamertag not good enough? WHY!!!!!!!! Who runs such a company?

sxygrkstd
sxygrkstd

to Airshocker... Finally, someone with common sense!!!! Wish they had likeminded people in business aspects of the industry like you.

airshocker
airshocker

I think they need to take a look at some of the major games they've released: Mass Effect, Dragon Age: Origins, The Sims 3, L4D1+2, Spore and Dead Space, etc. All of these games were pretty well hyped and they spent a lot of time---and money---with them. They're not doing so well spending a lot of money on these games that, frankly, people have no interest in. Start putting a lot of money into a few games that actually HAVE potential and stop wasting time with making new Maddens, FIFAs, and NHLs. You don't need to make a new game every year for those franchises to do well. Make DLC packs that retail around 19.99 a pop that will add significant upgrades and refresh the teams. Stop taking huge risks and go back to what players like and I guarantee you the company will do better.

Musashi920
Musashi920

I think in simple terms EA is simply too big of a company and its managers couldn't handle the various tasks needed to keep it productive. This ranging from crappy games in development and bad marketing.

lamprey263
lamprey263

Dead Space Extraction was a great game but EA should have known better than to try marketing a 3rd party game to a consumer base that only buys Nintendo published games, not to mention M-rated games have even less of a chance breaking ground; in this sense Dead Space Extraction was double handicapped from the start. Other examples include Madworld, Conduit, No More Heroes, and Fatal Frame 4. And since EA was only a publishing partner on Left 4 Dead 2 and Rock Band their revenues from these were small. Brutal Legend also failed to draw in consumers, never played it but I can say it never interested me, and you never heard people saying anything good about it after its release. I did pick up Saboteur and for me the game was a big disappointment, and I can understand why it didn't sell well from my experience. However, Dragon Age did sell more than both Brutal Legend and Saboteur, EA should at least be happy about that. They still have the rest of the fiscal year to look forward to, I think that both Mass Effect 2 and Bad Company 2 can make EA a good amount of revenues before the end of March. We'll have to see how consumers respond to Army of Two 40th Day, hopefully it's able to sell well before the Mass Effect 2 launch in two weeks. Though, I don't expect Dante's Inferno to do much for EA. The demo disappointed me, I can see it not getting the best reviews at launch. It's also releasing right next to Bioshock 2, which I think will hurt it most.