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EA takes it slow and steady
Competitors have all the blockbusters. But Electronic Arts should do just fine.
July 21, 2004: 2:40 PM EDT
By Eric Hellweg, CNN/Money contributing columnist

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BOSTON (CNN/Money) - On Thursday Electronic Arts will announce its quarterly results, and analysts expect earnings of 5 cents a share on $420 million in revenue, extending the company's annual sales growth clip of roughly 20 percent.

Nevertheless, the announcement by the leading video game publisher is being overshadowed by events taking place later this year, when a cavalcade of enormous titles -- unprecedented in pedigree and sales potential -- will hit the market.

The second half of the calendar year will see the release of "Doom 3," "Grand Theft Auto: San Andreas," "Half Life 2," "Halo 2," and others. All are expected to post boffo sales numbers.

The problem for EA with that lineup? None is an EA title.

The company will release the next version of its flagship Madden football game on Aug. 9 and Sims 2 on Sept. 17, but despite the previous success of the two series, they don't match up to the gaudy numbers produced by the Grand Theft franchise alone.

That's why some analysts are predicting rough seas for EA's holiday quarter. "People only have a limited budget for videogames," said Michael Pachter, research analyst with Wedbush Morgan Securities. "If they buy Grand Theft and Halo, that's $100 they won't have to spend on an EA game." Pachter doesn't own EA stock, and Wedbush has no investment banking relationship with the company.

Normally, a company not keeping pace with the releases of its competitors would be a red flag for investors. I'm not too concerned, however, and neither are some analysts. "EA's portfolio is more balanced and less dependent on one huge game in the second half of the year," said P.J. Macnealy, an analyst with American Tech Research.

Another reason not to worry is that the company has plenty of cushion built into its expense structure. EA spends more on research and development and sales and marketing -- both largely discretionary expenses -- than any other game publisher. So even if its sales come up short in the next quarter or so, it can cut back on research and marketing and still hit its profit margins.

Still, in the gaming industry, where each title takes at least 18 months to develop, execution is key. EA has stumbled in the past with its online offerings, and it needs a strong debut for its first titles for Microsoft's Xbox Live platform.

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"If EA blows it, gamers will look for other experiences from other companies," says Schelley Olhava, a gaming analyst with IDC. "In some ways, [EA is its] own worst enemy -- it has to do better each year." The company has proved in the past that it can rebound from stumbles, and has structured itself for flexibility.

Olhava sums up EA's future bluntly, but perhaps best: "I don't expect to see much from them that's going to suck."


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.