If we were to play a game of word association, what is the first word that would pop into your head if I told you that shares of Electronic Arts (NASDAQ:ERTS) were off by better than $9 last night after it warned that it would close out its March fiscal year in less than stellar fashion?
How about "Buy"?
Yes, the company's new fiscal 2005 guidance is a bit of a blow. Revenues that were once expected to grow by as much as 12% will inch higher by no more than 6%. Earnings per share have been marked down to a range of $1.62 to $1.64 -- better than two dimes per share lower than the company's original forecast.
But I think the market is overreacting. EA claims that its new releases are selling just fine. It's just that its older catalog titles aren't holding up as well as they used to.
Given that EA is the world's leading video game software company, one can imagine that this kind of dunk creates a huge splash. In other words, if you've been watching smaller firms like Take-Two Interactive (NASDAQ:TTWO), Activision (NASDAQ:ATVI), and THQ (NASDAQ:THQI) for a good time to get in, you're going to find those shares cheaper this morning as well.
So why am I not overly concerned? Well, take a look at the video game landscape. The Nintendo (NASDAQ:NTDOY) DS rolled out over the holidays, and the Sony (NYSE:SNE) PSP hits the market on Thursday. Until those platforms grow, it's completely understandable for handheld software sales to come in slow, since gamers are hesitant to build up their video game libraries for older formats (even if earlier Gameboy titles still play on the DS). The same platform shift isn't taking place on the console side for a few more years, but it's only natural to expect some form of lull after the holiday selling season for the GameCube, Sony PS2, and Microsoft's (NASDAQ:MSFT) Xbox -- especially if those owners have been saving up to buy a DS or PSP.
No, I don't own shares of EA, but I approach every rainstorm with an eye for the rainbow. In this case, you have a quality company that in fiscal 2006 will be in even better shape, especially after fortifying its Madden franchise by closing out the competition with its NFL licensing deal. You also have a company, if you eye the chart over the past few years, that will have the occasional operating hiccup yet ultimately come back and hit a new all-time high.
The stock has been a huge winner for Motley Fool Stock Advisor subscribers -- yes, including today's dip. The harder it falls, the more ground it has to make up to hit that next new high.
Some more recent EA headlines:
- EA's got some superhero gaming action in the works.
- We may have seen the company's last baseball title.
- The company's new sports rival is also one it partly owns.
Longtime Fool contributor Rick Munarriz does own quite a few EA games, but he does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
