A report by research firm Cowen and Company says Electronic Arts has "missed the current hardware cycle" and questions the company's financial guidance following "serial earnings disappointments."
The report says EA's revenue growth will have to exceed that of the industry as a whole by a "considerable margin" despite a reduced publishing schedule in order to achieve its targets and while further cost reductions could help make it happen, such cuts would also likely cause more harm than good in the long term. Analysts' figures for 2010 aren't much lower than EA's own but drop off sharply in 2011; the company needs "significant new hit games" to drive margin gains but very little is currently known about the company's release schedule for the year.
"We believe that following serial earnings disappointments, Electronic Arts now deserves a lower valuation premium than the company has historically enjoyed," the report says. "Since management first laid out its initial full year 2010 guidance and full year 2011 long-term guidance in February 2008, the company has failed to deliver on its earnings targets and has been forced to repeatedly revise down its guidance. Given this historical record, we do not think investors should place too much faith in management's current guidance."