EA stock takes a beating

Publisher's disappointing guidance revision sparks sell-off of stock and analyst downgrade; shares lose 12 percent of value in a single day.

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Yesterday, Electronic Arts gave analysts a heads up that some disappointing financial reports are on the way. After the close of trading, the publisher withdrew its previously issued financial guidance for the fiscal year ending 2009, saying that its net revenue and earnings-per-share expectations would not be met.

Shareholders reacted to the news today by selling off EA stock at nearly six times the daily average. EA shares opened the day trading at $16.85, down nearly 13 percent from the previous close of $19.35. Over the course of the trading day, they recovered slightly to close at $17 even, still down more than 12 percent for the day.

They weren't the only ones backing off the publisher's stock. Wedbush Morgan Securities analyst Michael Pachter downgraded his rating of EA shares to "Buy" from "Strong Buy." Despite the move and an investors note taking EA management to task, Pachter is still mildly optimistic about the publisher.

"The company remains the largest third party packaged goods publisher, has a large number of successful franchises, and has tremendous brand loyalty," Pachter wrote. "Should management execute on the renewed promise to get things right, we have no doubt that the company can grow earnings at a rapid rate. Thus, as much as we may feel it appropriate to give up completely on the stock following yet another misstep, we think it would be inopportune to do so."

Pacific Crest Securities' Evan Wilson showed less patience with the publisher in his own note to investors.

"EA admitted that its games did not sell well, but it did not take responsibility and address the core problem that it has not produced hit games," Wilson said, adding, "EA is positioning itself as a victim of its circumstances--that the best is yet to come after it makes it through these difficult times. However, we continue to believe that its actions exacerbate the negatives that the videogame industry as a whole is facing. Results have been mediocre for too long."

The lowered projections are just the latest in a series of hits EA has taken this year. In October, the publisher announced a greater-than-expected $310 million loss, or 97 cents per share, for its fiscal second quarter. That loss came despite net revenues spiking 40 percent to $894 million during the July-September reporting period. At that time, EA also revealed that it would be cutting 6 percent of its workforce--or roughly 600 jobs--across a variety of divisions within the company. Yesterday's news included word that EA would be laying off still more employees, consolidating facilities, and cutting back on its slate of games for the next year.

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