Market Overview

Electronic Arts Tumbles After Earnings, Star Wars Misses Analyst Estimates

It was revealed on Tuesday that Electronic Arts (NYSE: EA) saw shares plummet after reporting estimates for the current and fiscal year that missed analysts' estimates. As a result, the company plans to cut jobs.

The change in fortunes at EA has been partly triggered by a drop in the number of subscribers for the game Star Wars: The Old Republic, which in turn triggered a 10% slide in shares.

It seems hard to believe that a company can lose money on a Star Wars title of any kind, but EA has managed it. The company said that it had 1.7 million active subscribers for the game in February, and that figure fell dramatically to 1.3 million at the end of April. The game cost over $150 million to make.

The reviews were generally positive for the game, but the issue was always of how long consumers will continue to pay out a monthly subscription fee as new games hit the shelves. EA previously said that operating costs would break even at 1 million subscribers, but that doesn't include the cost of making the game.

EA dropped up to 9.1% to $13.75 on Monday, and the company forecast a fiscal loss of 40 to 45 cents per share. None of this is helped by the fact that EA is struggling to come to terms with declining sales of packaged games.

And the bad news keeps rolling is, as a planned release from recent acquisition PopCap Games won't be out this quarter. EA will also be charged a staggering $40 million to terminate licenses in the older packaged games business.

Sales for 1Q ending June 30 will be roughly $500 million, according to EA.

If there is a bright side, it is with the online gaming industry, with EA seeing double-digit growth in the sale of mobile games played on Facebook and other social networking sites. CEO John Riccitiello said on Monday that the company has a new title in the pipeline, but the release will be delayed into the next fiscal year.

EA has predicted income of $4.3 billion in adjusted revenue for the year, though analysts had predicted $4.51 billion.

4Q net income shot up to $400 million, or $1.20 per share, for the period ending the end of March.

"Star Wars' performance is very much in line with our original assumptions," Riccitiello said in a conference call. "It's in our top 10 most important brands, but it's not in our top five. I understand that [the drop in subscribers is] generating a lot of interest. I don't think it warrants as much as we're seeing now."

Follow me @BCallwood.

Posted-In: Earnings News Retail Sales Tech

 

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