Please ensure Javascript is enabled for purposes of website accessibility

Why This Quarter Is Key for Electronic Arts

By Dan Caplinger – May 4, 2013 at 4:25PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The game-maker's business has struggled even more than its competition, yet its stock is soaring.

On Tuesday, Electronic Arts (EA 0.28%) 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 (META -1.45%) 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.

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

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger.

The Motley Fool recommends Activision Blizzard and Facebook and owns shares of Activision Blizzard, Facebook, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Electronic Arts Inc. Stock Quote
Electronic Arts Inc.
EA
$115.14 (0.28%) $0.32
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$134.40 (-1.45%) $-1.97
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$236.41 (-0.44%) $-1.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.