Electronic Arts didn't sell as many games as investors expected it to and now the stock is taking a beating. Shares of EA have fallen nearly 10% from yesterday's market close because investors are disappointed that EA earned just 2 cents per share in the quarter ended March 31 vs. year-before earnings of 29 cents per share.
Most of the news coverage focuses on two key issues: first, EA's earnings fell. It just didn't sell enough games to rake in the big bucks this quarter. MarketWatch notes that the entire games industry will be on tenterhooks during this big transition year as older consoles are retired and the marketing hype for the Xbox 360, PS3 and Revolution begins to escalate. In transition years like this one, game enthusiasts tend to scale back purchases of current-console products in order to start saving for next-generation consoles and games.
EA certainly appears to be sensitive to increased consumer reluctance to buy. The company plans to release just 8 games this quarter; last year EA released 11 games in the same quarter. This is a trend that we should see repeated across all publishers.
The second issue is that EA’s costs of production rose. EA’s management has tried to portray the rising costs as necessary to maintain the company’s lead in the industry. “We’re trying to balance our short-term results with long-term investments,” EA CFO Warren Jenson told TheStreet.com.
All the lawsuits certainly don’t help that bottom line, though, and it’s hard to interpret the $21 million that EA spent on an employment-related lawsuit as an investment in the future.
It’s not all bad news for game companies, though. Sony’s PSP may end up having a banner year as a result of consumer uncertainty and the reduction in PS2, Xbox and GameCube releases, according to MarketWatch. “The transition should be further eased by some recent products, such as the PlayStation Portable. For the next seven to eight months, developers can focus on launching games for this device while they build their next-generation portfolio.”
