What Are the Risks Facing EA? What Are the Risks Facing EA?
November 11, 2012
Following is an excerpt from the report, which focuses on the main risks facing the company. It's just a sample of one section, but we hope you enjoy.
When Pacific Crest analyst Evan Wilson downgraded shares of EA in late October, he detailed the "unimaginably disappointing" events at the company over the past year. The initial failure of Star Wars: The Old Republic made the cut, but so did the shortcomings of the NBA Live and Medal of Honor franchises.
EA doesn't need to hit on all cylinders. It can afford to skip an NBA season or see SimCity Social flop. However, if misses begin to outnumber the hits – and those hits aren't base-clearing homers -- EA will have problems.
It's also important to remember that the push for digital isn't a magical fountain of youth. Investors that bought into Zynga's IPO at $10 now know firsthand how even attracting tens of millions of players to a single game isn't enough to assure healthy financials. In fact, diving deeper into EA's own digital performance, we see that the Facebook (Nasdaq: FB) gaming craze isn't just wearing on Zynga. EA reported 42 million monthly active users on social games at the end of fiscal 2013's second quarter, sharply below the 101 million monthly active players it was attracting a year earlier.
The gaming industry is in a state of transition. The slowdown in both console and even PC sales require an emphasis on the tablets and smartphones where casual gamers are passing the time. EA has the brands to matter, but the money to be made may not rival what the company was making when folks were gladly shelling out $50 or $60 for a new game