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Analysts sour on EA

Lazard Capital Market's Colin Sebastian downgrades publisher's stock as industry-watchers take management team to task.

Analysts never like to hear bad financial news from the companies they cover, but yesterday's glum quarterly report from Electronic Arts seems to have hit a nerve. A flurry of investor notes this morning weighed in on the publisher's results, and there was little sympathy to be found, starting with Lazard Capital Markets' Colin Sebastian lowering his rating on the stock from "Buy" to "Hold."

Sebastian noted that EA has been stagnant at a point in the console cycle where it should be ramping up for significant growth. With time running out before publishers have to start investing in software for the next generation of consoles, he noted EA is becoming less likely to generate strong profits before the downturn of the cycle starts. The publisher's recent stated emphasis on quality might not be paying off either, according to Sebastian.

"While we are encouraged by improving quality ratings of several annualized EA Sports titles, as well as recently released Dead Space, we continue to believe the improving product execution is coming at a high cost," Sebastian noted, "and EA's margins are ramping more slowly than we originally expected at the beginning of the year."

Some analysts were clearly frustrated with the publisher's malaise. Pacific Crest Securities' Evan Wilson said the firm had become bored writing investors notes about EA lowering its profit expectations.

"The justification for the delay in profits is always heaped into 'digital investments for the future,'" Wilson wrote. "While it was a different management team singing the tune, the commentary was the same in 2005 as we entered this cycle. The investment needs to be justified eventually, but as of yet it has not been. Today's negative reaction to the delay in profitability is not surprising, but management's continued insensitivity to investors' desire for profit growth in the fourth year of the video game cycle is. ... EA is positioning itself as a victim of its circumstances--that the best is yet to come as the company makes its way through these difficult times. However, we continue to believe that its actions exacerbate the negatives that the videogame industry is facing. EA's results have been mediocre for too long."

In his own investors note, Wedbush Morgan Securities' Michael Pachter was similarly unhappy with management's approach to its quarterly report.

"EA management was somewhat aloof during the earnings call," Pachter said. "With the stock hovering near a seven-year low, management continued its recent history of disappointment, and spent an inordinate amount of time sowing seeds of fear about the potential for a tepid holiday sales season."

Despite lowering his 12-month guidance on EA stock from $53.50 to $38, Pachter retained his "Strong Buy" rating on the publisher. He noted that the company has been producing better games, has been maintaining "robust sales" of new games, and has a number of big releases in the pipe.

"However, management has demonstrated an uncanny ability to snatch defeat from the jaws of victory in the eyes of investors," Pachter wrote, "and we think that these old habits will take a long time to die."

As of press time, EA stock was trading at $22.98, down more than 17 percent from yesterday's pre-quarterly-report closing price of $27.73.

135 Comments

  • ASpartan

    Posted Nov 4, 2008 7:10 pm GMT

    The WSJ formally urges Disney to purchase EA. I cant link to the original article but Wired has an article about it published http://blog.wired.com/games/2008/11/wall-street-jou.html

  • Lord__Darkstorn

    Posted Nov 3, 2008 2:08 pm GMT

    I don't think that the growth will be as significant with the global financial crisis and games still costing $60 a pop.

  • Grinch123456

    Posted Nov 3, 2008 1:57 pm GMT

    SecuROM backlash has a lot to do with it, you know. Consumers don't like malware on their computers and the market responds negatively.

  • tudyniuz

    Posted Nov 3, 2008 12:32 pm GMT

    The only EA game I'm looking forward right now is Fifa Manager 09

  • sexyG

    Posted Nov 3, 2008 12:13 pm GMT

    It's quite ignorant to talk about quality & content of 'EA Games' like they're all the same. It's a huge publisher that in '06 employed 6-7,000 worldwide, many of whom aren't even involved in game design or development. Their games are mostly manufactured by a myriad of smaller development teams/studios that EA aquired. Would you blame EA if you thought WO sucked? No, because you'd be barking up the wrong tree. And if you liked Dead Space you should really be hailing EA Redwood Shores (the devs), instead of EA (who just acts as publisher, cash-cow, and competence provider). I think there's been a trend of improvement in the quality of games released by EA, but I don't buy sports games.

  • ProtegeRuckus

    Posted Nov 3, 2008 12:11 pm GMT

    I wish I had the money to buy this stock. As soon as the economy rebounds it's going go back up to around 80 dollars, and that's just based on what history has shown us.

  • ASpartan

    Posted Nov 3, 2008 12:05 pm GMT

    The Wall Street Journal suggested for Disney to buy EA. GamePolitics is reporting on it here:
    http://www.gamepolitics.com/2008/11/03/wall-street-journal-disney-should-buy-ea

    I think that would be bad. I would like to see StarDock Entertainment step up and organize a takeover coalition with the following companies:

    Paradox Interactive
    Gas Powered Games
    Ironclad Games
    Kerberos Productions

    I think the end result would be a truly awesome game development company that really would be focused on delivering the best product possible to gamers and providing outstanding product support.

  • Marzillius

    Posted Nov 3, 2008 11:49 am GMT

    Hmm, what is this "quality" you are speaking of, EA? Have you checked Red Alert 3? It's almost impossible to log into the online!

  • jadefury27

    Posted Nov 3, 2008 11:36 am GMT

    the market is such a fickle place. All it takes is one good game and then profit shares are back up. people are too paranoid.

  • tomwenz

    Posted Nov 3, 2008 11:17 am GMT

    I am not suprised, as EA is a company that focuses more on quantity instead of quality. Sure some of their game are fun off the start, but they quickly lose my interest. Even the newer command and conquer games. Sure the look good and all, but I only made it about halfway thru before I got bored with them. I just don't find them as exciting in the long run as the old Westwood ones were.

    I think EA should stop trying to assimilate other companies, tarnishing their once good reputation by associating them with the EA logo.

  • Eko_Eko_Azarak

    Posted Nov 3, 2008 11:11 am GMT

    They should be okay. They're Electronic Arts for crying out loud!!!

  • schu

    Posted Nov 3, 2008 11:09 am GMT

    nah nah nah nah, nah nah nah nah, hey hey hey
    goodbye

  • thekodaman

    Posted Nov 3, 2008 10:12 am GMT

    Fools, if only they know the power of the dark side of the force...... of gaming development. The Empire will strike back.... although I wish it wouldn't.

  • retrofraction12

    Posted Nov 3, 2008 9:49 am GMT

    well if they wern't spending a lot of money making sure that Madden Is the only NFL game I'm sure they could make up for it.

    I have seen in the lack of core game support for the wii from EA not that I don't enjoy sport games and gimic puzzel games, I really want to see a "cool" game on the wii.

  • necronaux

    Posted Nov 3, 2008 9:36 am GMT

    I doubt we've seen the last of EA. As much as they get trashed in comment/blogs like this, they still (sometimes inexplicably) end up selling a lot of video games.

  • CamiKitten

    Posted Nov 3, 2008 9:23 am GMT

    Exactly what Bigkx said. But EA kinda gets on my nerves >_>

  • ctburesch

    Posted Nov 3, 2008 9:22 am GMT

    strayfies, I don't know where you work, but many many businesses can't get the credit for their operating and inventory. This means they cut jobs..so lots of the average Americans will be affected by what is happening on Wall Street. My best friend is a pipe fitter. His job was cut as about 300 others he works with due to the company not having the money to continue as they were. He isn't involved with Wall Street yet he is affected.

  • Bigkx

    Posted Nov 3, 2008 8:53 am GMT

    A change in strategy always take a little time in order to pay off. It is obvious that extra dev time will loose money in the short run, but when titles sell much better (and i am sure that Dead Space will do well this x-mas season), the company will bounce back.

    i for one am happy with the change. In a few years, the company will be in much better health.

  • Ineor posted Nov 3, 2008 2:26 am GMT (does not meet display criteria. sign in to show)

    Ineor

    Posted Nov 3, 2008 2:26 am GMT (hide)

    I hope EA don't come back from this. They just make a load of bull (apart from Dead Space) and they should just give up.

    PS: They can only go after making the Dead Space sequel

  • MarcJL31

    Posted Nov 2, 2008 10:17 pm GMT

    Like many have said before, the economy sucks currently. But EA doesn't really help their own effort with the games they release of poor quality. I remember when I loved EA Games, especially in the sports category. But the disappointment Madden has become and now that they have ran out 2k games for college basketball, I rather not play a sports games. Maybe if the invested their money in the quality of the game instead of trying to buy out the competition, they wouldn't have as big of a problem. And with the next gen consoles having update capability, EA rather ship the game out on time and patch it up bit by bit later. Everyone knows that EA can develop quality games, i.e. Dead Space. Its just a matter of taking pride in the games you release. And beat out the competition based on the game, not the money, that you put out.

  • Mike_Labeckio

    Posted Nov 2, 2008 9:36 pm GMT

    I thought EA made major changes in their mamagement department to help fuel a new serge in their stocks, and profits. Sounds like the only thing they are doing is crying about the stock market whoas.

    Analysts like this could cause stock holders and other buisness' to back away or remove them completely from partnerships they might have with EA. It cost $60.00 for a game littered with ADS, I wonder how much EA might try charging if they loose the advertising partners.

  • strayfies

    Posted Nov 2, 2008 8:57 pm GMT

    You guys read it right? It said "The publisher's recent stated emphasis on quality might not be paying off either, according to Sebastian [the Analyst].". What this analyst is telling them is that making shallow, quick games with a ton of quarterly paid expansions was doing fine; when they changed course, they suffered a loss. Funny, I had started to think EA was doing better with original titles like Dead Space.

    But a lot of other game companies suffered marked loss last quarter. Activision stock dropped ~33% and most other major ones lost in the double-digits. It's bad right now; EA has a couple 'experts' in this very article saying they're bound for a return, just not a hasty one. I wouldn't expect a hasty return on anything in double-digit percent loss on market.

    And I don't honestly expect this will affect any of us, unless we're investors.

  • MightyMouse505

    Posted Nov 2, 2008 8:29 pm GMT

    Next thing you know, EA will be petitioning the government for 10 billion dollars to get itself out of financial hot water, even though it might have been their own crappy fault in the first place

  • donscrillinger

    Posted Nov 2, 2008 7:24 pm GMT

    hopefully the nfl will back out the deal wit ea cuz they have not steped to the plate in football just my opin

  • bane546

    Posted Nov 2, 2008 7:14 pm GMT

    @kbmj2324
    agreed! used to be a good thing when the EA logo was on a game, but now i avoid anything new from them like a transvestite hooker(save maybe dead space...)

  • kbmj2324

    Posted Nov 2, 2008 6:43 pm GMT

    hopefully they dont recover...lol. EA sucks!

  • Cheesewagon

    Posted Nov 2, 2008 5:52 pm GMT

    wow...that sucks...hopefully EA can recover...

  • Guljigit92

    Posted Nov 2, 2008 5:01 pm GMT

    Man is EA in trouble.

  • Birdman1333

    Posted Nov 2, 2008 4:04 pm GMT

    If good quality games would bring a good profit we wouldn't be in this fix. The problem is that too many people have bought crappy games in the past and have not purchased quality games (Psychonauts). A stockholder probably rather have EA produce crap and maximize profit. (Psychonauts is just an example - I realize EA wasn't invoved with it. Double Fine/Majesco)

  • sieg6529

    Posted Nov 2, 2008 3:57 pm GMT

    wow, $22.98...I can afford 4 or 5 shares of that on my Roth IRA. I'll wait and see how they fare on Monday.

  • pcgamer522

    Posted Nov 2, 2008 3:43 pm GMT

    Hey, they're still expected to be a $40 stock in 52 months. And they've got eight billion dollars in capital, so EA isn't going anywhere. My money is still on them.

  • deanbezic

    Posted Nov 2, 2008 1:51 pm GMT

    you know, good riddance. EA needs to stop producing endless mediocre titles. what goes around comes around.

  • zintarr

    Posted Nov 2, 2008 1:23 pm GMT

    Wow, there are people that know just about nothing about investment. STOCKHOLDERS let executive boards run rampant doing whatever they please including destroying jobs, lives and companies so long as the STOCKHOLDERS get their all mighty dividend. That is how STOCKHOLDERS, the silent majority, do damage to Wall Street and the rest of the world but I am glad there are people that know so much about "economics and business" are on these boards. (actually Othello it would be finance when taling about stocks). This is a of course a simplistic description but it explains it. If I was an EA employee I would be terrified about what measures the stockholders will be be calling for to solidify their investment in EA. The real sick part is that the stockholders are barely even people as EAs stock, 91% of it, is owned by investment institutions and not people.

  • fennec_fox

    Posted Nov 2, 2008 12:23 pm GMT

    Oh great.. Now EA will start listening to bloody stockholders, who already have done trmendeous damage on Wall street with their never ending hunger for MORE profits, and follow the lead of UBI with their fantastic line of Horsez, Dogz, Catz etc shovelware...

  • truenextgen

    Posted Nov 2, 2008 10:46 am GMT

    gives new meaning to the saying, taking a dive lol

  • ASpartan

    Posted Nov 2, 2008 10:31 am GMT

    EA needs to stop the epic lame crap with the DRM and calling customers stupid and thieves. DRM basically does nothing to stop copyright infringement and only hurts real customers (not consumers). The A-bombing of EA current titles DS & RE3 is getting underway at the moment and it is hoped that things turn out just like they did for Spore or better and it is hoped that stock holders will stand up and take note and do something about the management practices or simply sell their stock. I urge everyone to checkout www.defectivebydesign.org & www.drm.info to educate themselves on DRM and to take action with your wallets, time and social networks. EA but be sent a clear message not to take a hot wet steamy dump on paying customers and to support the titles it releases. And we are not talking about some $3 a minute phone support system either.

  • SkytheWiz1

    Posted Nov 2, 2008 10:30 am GMT

    I wish someone would smack around EA until they produced games that actually work well.

    However, I've been hearing a little bit of good about Dead Space, so I'm not bashing on that, per se, but some of their other titles needed a lot of work. Mercs 2, for instance, with its bugs and glitches.

  • cas11123

    Posted Nov 2, 2008 10:28 am GMT

    "look at Team Fortress2; can't play a dam round now because the lag is tremendous"

    @ Cocomacoco

    EA has no control over Team Fortress 2 whatsoever. TF2 is one of Valve's IPs and they are not owned by EA. They just publish Valve's games and that's it. There's no need to spread hate based on false assumptions when there's plenty of real reasons to base that hate.

  • tudyniuz

    Posted Nov 2, 2008 10:11 am GMT

    I hate EA

  • otanikun

    Posted Nov 2, 2008 9:41 am GMT

    XD
    Ouch EA; well they're just like any other hardcore gaming company, they'll bounce back up in no time I'm sure.

  • zintarr

    Posted Nov 2, 2008 8:55 am GMT

    Who at Gamespot wrote this article? If Gamespot wishes to present an article about the financial aspect of a gaming company I think they need someone other than this Brendan Sinclair to write it because overall there is little useful information presented. I mean CRAP, most of the article are quotes but he mentions little about their stocks statistics (which are a roller coaster at the moment). I bet Gamespot would have to look up what a PM or a PE is when talking about stock analysis. A better article would look into why a company, EA, that has no debt on the books lost 10% over this time last year. Oh wait, that would be beyond Gamespot!

  • okassar

    Posted Nov 2, 2008 6:36 am GMT

    Meh,EA'll manage to get back up there,it's a monster. Other than that,I love how Gamespot used the word "glum" Teeheehee.

  • firehawk998

    Posted Nov 2, 2008 5:30 am GMT

    TO EA Many industry watchers will say that stop spending so much money and time making quality games and start making crap games with little money to increase profit. Dont do those things make quality games like DEAD SPACE and improve your new IPs such as mirrors edge and also improve existing ones like NFS.

  • MFR449

    Posted Nov 2, 2008 1:53 am GMT

    I have been mad at EA for a while now, but I still pick up one of there games once in a while. My main problem with them is they release a game and forget about it. Some patches for the games they release with bugs would be nice. I would not be saddened to see EA fail. My favorite game companies are Infanity Ward and UBISoft.

  • GranReyUno

    Posted Nov 2, 2008 12:11 am GMT

    I have stayed away from purchasing a EA sports game for 3 years now. As long as they continue to release quality titles like Dead Space then EA can get my money. So EA you better hope Mirror's Edge is as good as it looks.

  • motorola29

    Posted Nov 1, 2008 11:40 pm GMT

    kinda funny when their stocks are dumping, they finally start pushing out better games.

  • sneaktip

    Posted Nov 1, 2008 11:23 pm GMT

    he means the stock price.............

  • cgoliver

    Posted Nov 1, 2008 11:12 pm GMT

    " jphillips1868

    Posted Nov 2, 2008 12:36 am GMT

    I think they are a good buy from a purley finacial standpoint, particulary with the price depressed. But given how EA schemes to antognoize and mistreat its customers, EA is getting what it deserves."

    From a purely financial standpoint? EA's games are $60, just like everyone else. The NFL2K series competed well with Madden (better, from my perspective) and sold their game for $40. Whose price is "depressed"? This makes no sense.

  • cgoliver

    Posted Nov 1, 2008 11:09 pm GMT

    Welcome to the biggest reasons why I will never buy an EA game again. Madden has turned into a monopoly, which in turn fails to allow a competitive market to spur innovation. Army of Two was the last EA game I played, it was tolerable, but waaay to short. I'm glad I didn't buy it. EA is the worst gaming company out there.

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