The video-game industry remains a minefield for investors.
Electronic Arts (NASDAQ:ERTS) became the latest bellwether to hose down its near-term prospects, following in the footsteps of recent party poopers GameStop (NYSE:GME) and Take-Two Interactive (NASDAQ:TTWO) to disappoint shareholders.
The second largest video-game company revealed that non-GAAP revenue will come in between $4.125 billion and $4.2 billion in fiscal 2010, short of the $4.2 billion to $4.4 billion range it was targeting just two months ago.
That may not seem like much of a miss for the fiscal year that ends in March ... but then we slip and slide on the way down to the bottom line. Non-GAAP profits per share are now projected to clock in between $0.40 and $0.55 a share, well short of November's guidance of $0.70 to $1.00.
Analysts were already getting queasy. Wall Street was looking for an adjusted profit of $0.79 a share on $4.26 billion in revenue -- perched at the lower end of the company's previous guidance.
EA is blaming the breakdown on weakness in Europe and a "product mix shift to lower margin distribution products" closer to home. In other words, it's probably having better luck in moving dirt-cheap games through Apple's (NASDAQ:AAPL) App Store or ad-supported social-gaming freebies on Facebook and News Corp.'s (NYSE:NWS) MySpace than it is with its bread-and-butter console titles.
Digital delivery was supposed to be a blessing for the industry. With no returns, packaging costs, or inventory headaches, games could be sold directly to gamers. But digital delivery has also leveled this market's playing field. EA is still EA, but it has to compete against hobbyist developers giving their diversions away to get noticed on iPhones, computers, or Microsoft's (NASDAQ:MSFT) Xbox Live.
It probably doesn't help that EA's golf franchise is in disarray until the Tiger Woods mess is cleared. A new blockbuster franchise or two would also come in handy. This is the kind of bleak outlook that demands action. It can follow GameStop in announcing a massive share buyback, or perhaps it can go after a real needle-moving deal like revisiting a potential pairing with Take-Two Interactive.
As it stands, EA's stuck. Despite a year of acquisitions and expanding revenue streams, its non-GAAP revenue won't be much improved from the $4.1 billion it rang up in fiscal 2009.
This is no way to win the only game that matters.
Other games to play:
