Electronic Arts is feeling the crunch of lower-than-predicted sales, GamesIndustry reports, as the company’s stock has dropped almost 25 percent over the past two days in the wake of lowered guidance and predictions that the company will not meet its revenue and profit targets in the future.
On December 9, EA CEO John Riccitiello issued a warning to investors that sales had fallen short of expectations. “While we saw significant improvement in the overall quality of our key products this year, we are disappointed that our holiday slate is not meeting our sales expectations,” he said. As a result, the publisher will be cutting titles from its release schedule in 2010, consolidating operations and laying off employees. “While we are cutting costs, we remain committed to investing in great game quality, in new properties and in our direct-to-consumer initiatives,” he added. “We will be launching several new titles and online games in fiscal 2010.”
In the wake of that admission, EA stocks tumbled more than 22 percent in just two days, while Gamasutra reports that industry analysts have been harsh in their assessment of the company’s performance. “After 20 months of believing that the EA turnaround was just around the corner, our patience and confidence has eroded,” said Michael Pachter of Wedbush Morgan. “With the stock hovering near a seven-year low, management continued its recent history of disappointment. Just when investors began to believe that things couldn’t get worse, they did, and we believe that investors remain skeptical that management is on the right track.” He added that he was no longer confident in the company’s ability to meet its fiscal 2011 goals of $6 billion in revenue and $1.5 billion in operating profit.
Colin Sebastian of Lazard Capital Markets, meanwhile, called for a more “aggressive restructuring” of the company, saying that EA “has yet to demonstrate meaningful franchise growth or operating efficiencies midway through the current console cycle.” But Sebastian seemed more inclined to place at least some of the blame on consumer nervousness about the economy, saying, “While we continue to believe that industry sales remain fairly steady, the weaker consumer is contributing to growing disparity in product performance.”
Despite the poor performance, Pachter said he doesn’t believe Riccitiello’s job is in any immediate jeopardy. Speaking to GamePolitics, he said, “He’s probably not in trouble yet. He’s probably in trouble in eight months or a year if this new strategy shows no traction.” He also suggested that EA’s games are “fine,” but that the company is overly ambitious, releasing far too many games at once.
“It’s not like Mirrors Edge is selling zero units; it’s selling two million. And Dead Space is selling two million or three million,” he said. “It’s crazy that these guys would think that they couldn’t maybe make these games again. Mirror’s Edge is more of a victim of just coming out in the midst of Far Cry, Gears, Fallout. How could you expect that game to fly? It got lost. I don’t think its an indictment of what they were doing.”