Electronic Arts Can't Shake Risk Factor

Ho said given that the company actually exceeded the midpoint of its guidance for the just-completed first quarter by $45 million, the $100 million cut in full-year targets actually amounts to a $145 million reduction, with $120 million of it likely coming from The Godfather and the remainder from foreign exchange impact.

Indeed, Spiegel noted that EA performed more than 10% better on the top line in the quarter than the company expected. First-quarter sales totaled $365 million, down from $432 million a year ago. But that still handily beat the consensus estimate from Thomson First Call of $326.8 million as well as EA's target of $300 million to $340 million.

"They definitely have some momentum," Spiegel said.

At least one analyst, Tony Gikas of Piper Jaffrey, was bullish about that momentum continuing. Like other analysts, Gikas reduced his fiscal year 2006 and 2007 estimates based on product delays, reduced visibility and transition risks. But he still expects EA earnings to grow nearly 15% during the next video game cycle, which Microsoft(MSFT) will kick off in November with its launch of Xbox 360.

"We are advising clients to invest in EA and video-game publishers during the next year and maintain holdings for a period of two years or more," Gikas said. He has an outperform rating on EA; Piper has not done banking with Electronic Arts.

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