Electronic Arts (
) is expected to announce earnings for the December quarter on
Wednesday, January 30. The video game publisher was affected by an
industry-wide decline through most of the calendar year with a 19%
year-on-year decline in packaged goods revenue in the last quarter.
Video game sales fell by 28% in the first half of the year and by
19% in the third quarter as Microsoft's (
) X-Box 360 and Sony's Playstation 3 continued through their
elongated product cycles.
The holiday season, which traditionally sees higher game sales,
also proved to be quite disappointing with video game sales
dropping by 22% over the prior year. We expect a drop in earnings
through product sales, partially offset by growth in digital sales.
The much anticipated release of the Playstation 4 and the X-Box 720
will boost sales in the coming years.
Our price estimate for
Electronic Arts' stock is $17
, implying a premium of 10% to the current market price.
See our complete analysis of Electronic Arts stock
EA has stated its intention to shift operation entirely to the
digital domain. The last quarterly report saw the company heading
in this direction with about 45% of the revenues generated through
digital media. In 2011, the product mix was just 33% digital. Game
downloads increased by 46% in the September quarter with a 60%
growth in mobile business and a 120% increase in smartphone and
tablet revenue. Digital sales usually have higher margins than
physical sales as manufacturing costs are not involved. The
December quarter report will show the impact increased digital
sales might have on EA's margins.
Electronic Arts seems to be waiting for the release of
next-generation consoles for developing new games. The number of
games released per year has decreased in the last few years, from
36 titles in fiscal 2011 to 22 in 2012. Electronic Arts plans to
release just 14 titles in 2013. We expect an increase in the number
of video games released by the publisher once Microsoft and Sony
release their respective consoles, leading to a subsequent rise in
video game sales.
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