Why This Quarter Is Key for Electronic Arts

On Tuesday, Electronic Arts (NASDAQ: EA  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings 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.

Electronic Arts is a leader in the video-gaming industry. But that industry has been under fire lately, as the revolution in low-priced mobile gaming threatens the business model of the high-cost console-based offerings on which Electronic Arts has relied and thrived for years. 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.

Stats on Electronic Arts

Analyst EPS Estimate

$0.58

Change From Year-Ago EPS

241%

Revenue Estimate

$1.04 billion

Change From Year-Ago Revenue

6.1%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Electronic Arts keep posting high scores in its earnings this quarter?
Analysts have pulled back on their earnings estimates for Electronic Arts in recent months, with consensus earnings-per-share falling by $0.07 for the just-ended quarter. That weakness is seen continuing into fiscal 2014, with a $0.04-per-share pullback in estimates, but the stock price has actually recovered nicely since late January, rising almost 20%.

The video game industry has struggled for a long time now, as console makers have been slow to produce new innovations and game producers have increasingly relied on sequels in established blockbuster series to produce sales. Yet even in a horrible environment, EA and its fellow game-makers have seen their stocks soar lately in anticipation of future releases of new game consoles.

Still, Electronic Arts has had a particularly tough time even compared to its peers. The company was named Consumerist's Worst Company in America last month, as survey respondents cited failings in customer support and game quality as key contributors to the bad rating. By contrast, Activision Blizzard's (NASDAQ: ATVI  ) model of combining high-sales console blockbusters with the recurring revenue from its World of Warcraft franchise has produced an ongoing stream of high-quality games that have the potential to become the next blockbuster franchises of the future.

Moreover, the social-gaming space has been changing at a rapid pace, challenging EA's presence in it. Last month, EA said it would shut down three games it offers to Facebook (NASDAQ: FB  ) users. For its part, Facebook has shifted the bulk of its attention toward mobile advertising and other revenue-enhancing initiatives, and the disappearance of its former emphasis on gaming has pushed EA and other gaming players back to their console roots to some extent.

In its quarterly report, Electronic Arts needs set out its strategy to capitalize on the expected wave of new consoles in the near future. Revamped PlayStations and Xbox offerings could reinvigorate the entire industry, but dealing with a leadership vacuum and laying off 10% of its workforce in advance of the need for a big push could prove to be disastrous if it keeps EA from scoring its fair share of the rewards.

While Activision and Microsoft have been taking the headlines when it comes to console gaming, investors following the gaming sector need to stay up-to-date on Electronic Arts. We can help. The Motley Fool's special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now.

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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