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Electronic Arts Shares Get Hammered
Electronic Arts shares tumbled Friday after the videogame maker slashed its full-year forecast, raising concerns that a slowdown in consumer spending may slam the videogame market.
EA, whose popular titles include "Rock Band", said on Thursday that it plans to cut about 6 percent of its workforce of 9,671, or about 580 jobs, in response to slowing sales, after posting a quarterly loss on par with Wall Street expectations.
On Friday, EA shares [ERTS 22.78 -4.95 (-17.85%) ] fell more than 15 percent to around $23 on the Nasdaq Stock Market.
The company cut its forecast for fiscal 2009 earnings per share excluding special items to a range of $1.00 to $1.40, from a previous range of $1.30 to $1.70. Analysts were expecting $1.45 per share, according to Reuters Estimates.
The forecast proves that even the videogame market—often thought of as "recession-proof"—may fall victim to a global economic crisis that has forced many companies to scale back their outlook as consumers trim spending.
"We are not saying the sky is falling," Chief Executive John Riccitiello said in a conference call. "What we are bringing to the table is caution, a recognition that catalog (sales are) weaker, and a commitment to managing our cost...with the specter of a recession over our shoulder."
With the economy in mind, analysts questioned EA's adherence to its retail pricing plan, which calls for marquis games like "Madden NFL" to sell for $60 and special editions like the new "Rock Band" bundle, which includes accessories, can go for up to $200.
"For the the rest of us that live in the real world, $60 is a lot of money," said Janco Partners analyst Mike Hickey. "The entertainment value is compelling, but it's still a large dollar purchase."
Last month, EA said it would push the release of the "Harry Potter and the Half-Blood Prince" game from November 2008 to next summer, to coincide with a delay in the film of the same name by Warner Brothers Pictures, a division of Time Warner [TWX 10.09 0.13 (+1.31%) ].
Chief Financial Officer Eric Brown, when discussing the lowered profit forecast, noted that EA had already paid for development costs for the "Harry Potter" game. He also blamed a "dramatic" strengthening of the dollar for the new outlook.
"We are facing some foreign-exchange headwinds," he said in an interview, adding that EA was keeping intact its full-year revenue forecast of $5.0 billion to $5.3 billion.
The company said it would take a charge of about $10 million in the third quarter for the cost-cutting action, and as a result expects to save about $50 million annually.
The company said sales were driven by its major franchises, including "Madden NFL" and new title "Spore."
"There's a lot of reasons to believe that the sector will hold up better than most, if not almost all others, as we move through a recession," said Brown.
EA, whose popular titles include "Rock Band", said on Thursday that it plans to cut about 6 percent of its workforce of 9,671, or about 580 jobs, in response to slowing sales, after posting a quarterly loss on par with Wall Street expectations.
On Friday, EA shares [ERTS 22.78 -4.95 (-17.85%) ] fell more than 15 percent to around $23 on the Nasdaq Stock Market.
The company cut its forecast for fiscal 2009 earnings per share excluding special items to a range of $1.00 to $1.40, from a previous range of $1.30 to $1.70. Analysts were expecting $1.45 per share, according to Reuters Estimates.
The forecast proves that even the videogame market—often thought of as "recession-proof"—may fall victim to a global economic crisis that has forced many companies to scale back their outlook as consumers trim spending.
"We are not saying the sky is falling," Chief Executive John Riccitiello said in a conference call. "What we are bringing to the table is caution, a recognition that catalog (sales are) weaker, and a commitment to managing our cost...with the specter of a recession over our shoulder."
With the economy in mind, analysts questioned EA's adherence to its retail pricing plan, which calls for marquis games like "Madden NFL" to sell for $60 and special editions like the new "Rock Band" bundle, which includes accessories, can go for up to $200.
"For the the rest of us that live in the real world, $60 is a lot of money," said Janco Partners analyst Mike Hickey. "The entertainment value is compelling, but it's still a large dollar purchase."
Last month, EA said it would push the release of the "Harry Potter and the Half-Blood Prince" game from November 2008 to next summer, to coincide with a delay in the film of the same name by Warner Brothers Pictures, a division of Time Warner [TWX 10.09 0.13 (+1.31%) ].
Chief Financial Officer Eric Brown, when discussing the lowered profit forecast, noted that EA had already paid for development costs for the "Harry Potter" game. He also blamed a "dramatic" strengthening of the dollar for the new outlook.
"We are facing some foreign-exchange headwinds," he said in an interview, adding that EA was keeping intact its full-year revenue forecast of $5.0 billion to $5.3 billion.
The company said it would take a charge of about $10 million in the third quarter for the cost-cutting action, and as a result expects to save about $50 million annually.
The company said sales were driven by its major franchises, including "Madden NFL" and new title "Spore."
"There's a lot of reasons to believe that the sector will hold up better than most, if not almost all others, as we move through a recession," said Brown.
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