Running a video game company isn't all fun and games. Electronic Arts
A year ago, EA issued guidance for fiscal 2010 well below Wall Street estimates and then revised downward twice, and last night's report pointed even further south. Revenue fell 23% year-over-year to $1.35 billion, while non-GAAP earnings came in at $0.33 per share -- 41% below the year-ago period.
CEO John Riccitiello noted that EA "missed on the top line, not as much as the sector missed, but we missed." EA's sales mix is sliding away from highly profitable packaged titles of the kind you'll find on store shelves at Wal-Mart
That's not all bad, though. Digital downloads now represent about 10% of EA's sales. This includes titles for handheld gaming systems like the Sony
Reshuffling the deck might be exactly what Electronic Arts needs today. It's hard to find a sector rival that hasn't beaten EA as an investment over the past year, and chief rival Activision Blizzard
But like I said, EA is reinventing itself as a mobile gaming specialist. That could be what the company needs to ignite a turnaround; the stock is still too expensive based on EA's current earnings power (which is nearly nonexistent), but relatively cheap on a price-to-sales basis. If you believe in a mostly download business model, then buying EA today could be rewarding in two or three years.
Do you have that kind of faith and patience, though? Discuss in the comment box below.