Electronic Arts Can't Shake Risk Factor

Shares of Electronic Arts(ERTS Quote) recovered slightly Wednesday as investors weighed lower guidance against a blowout quarter.

However, uncertainty about the transition to next-generation game consoles prompted one analyst to lower his rating on EA to hold from buy.

Shares of Electronic Arts were recently up 75 cents, or 1.3%, at $59.75 after declining a day earlier by 4.7%.

"People are thinking their [EA's] guidance is conservative, not aggressive," said Joe Spiegel, a fund manager with Dalek Capital, which does not hold EA shares.

"I am a little surprised. I thought people would be a little more cautious," Spiegel added. But he noted that there's reason to believe in EA given that the company so widely beat its guidance for the June quarter.

On Tuesday, the Redwood City, Calif.-based video-game software maker said it expected fiscal year 2006 earnings of $1.45 to $1.60 a share -- down 10 cents from prior guidance -- on sales of $3.3 billion to $3.4 billion -- down $100 million. The company blamed delays in its new game based on The Godfather movies, whose launch was postponed from the crucial holiday quarter to the company's March quarter.

In addition, the company acknowledged there will be some margin pressure from higher licensing fees paid to football announcer John Madden to keep his face on its market-leading National Football League game.

"They really need to execute really well to overcome the push-out in The Godfather and the slight margin reduction likely to come from Madden," Spiegel said. "It's clear to me basically everything else has to go right, and I'm not saying they can't do it but the risk to EA is clearly to the downside."

Wedbush Morgan Securities analyst Michael Pachter also took a more cautious stance on EA Wednesday when he lowered his rating to hold from buy.