Electronic Arts Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Electronic Arts (NASDAQ: EA  ) . The video game company has faced a huge change in the industry, as low-ticket mobile-device and computer games have pulled a great deal of demand away from high-priced console game offerings. Let's take an early look at what's been happening with Electronic Arts over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Electronic Arts

Analyst EPS Estimate

$0.56

Change from Year-Ago EPS

(43%)

Revenue Estimate

$1.29 billion

Change From Year-Ago Revenue

(21.7%)

Earnings Beats in Past 4 Quarters

4

Sources: Yahoo! Finance, S&P Capital IQ.

Will Electronic Arts up its game?
Over the past three months, analysts have gotten a lot more pessimistic about Electronic Arts, pulling their earnings-per-share estimates down by $0.15. But the stock has done quite well, rising 22% since late October.

The big problem that Electronic Arts has faced in recent years is the rise of low-priced social gaming. Even though Zynga's (NASDAQ: ZNGA  ) stock hasn't been a good investment, the company's business model is a threat to high-priced game makers, forcing EA to differentiate its products on quality to try to justify their much higher prices. Take-Two Interactive's (NASDAQ: TTWO  ) coming release of the latest Grand Theft Auto V installment is the most timely example of how high-profile game franchises do well while less-renowned games go largely unnoticed, especially as a lack of new console technology has further depressed interest in the space.

In response to those pressures, EA and rival Activision Blizzard (NASDAQ: ATVI  ) have taken a number of similar steps. By working directly with console makers, EA hopes to cut out GameStop (NYSE: GME  ) as a middleman and handle distribution of its game content directly. But where Activision has an edge over EA is in subscription-based revenue, with Activision's World of Warcraft providing dependable recurring income. EA has borrowed a page from Activision's book with its Battlefield 3 subscription service, but it's still well behind.

Investors need to look closely at EA's report not just for news on current industry conditions but also for signs of any sort of new revolution in the space. Without some help in the form of innovative new consoles, it'll be hard for EA to justify the recent rise in its share price in the long run.

Learn more
Electronic Arts flies under the radar of most investors, with Activision and Microsoft getting most of the headlines. Get a more in-depth look at the company in our premium report, which will help you decide whether EA is a smart play for your portfolio. Click here to get your copy now and we'll throw in a year of free quarterly updates as news breaks.

Click here to add Electronic Arts to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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