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TheStreet Open House

Electronic Arts (EA) Shares Bruised on the Battlefield

Stocks in this article: EATTWOATVI

NEW YORK (TheStreet) -- Electronic Arts  (EA) shares were taking a beating Thursday on the news it had suspended future projects and expansions until glitches for the recently-launched Battlefield 4 were attended to. Shares tumbled 6% to $21.01 by market close.

Speaking with IGN, the video game developer said releasing fixes for the bug-riddled first-person shooter game was a top priority. DICE, an EA-owned, Swedish developer, is responsible for the game's patches. It is not known how this will affect future video games EA has in the pipeline, including Star Wars: Battlefront and Mirror's Edge 2, due for release in 2015 and 2015/16, respectively.

A related drop in sales would significantly hamper EA's December-ending quarter. In late October, the Redwood City, Calif.-based business forecast third-quarter sales of $1.65 billion and net income of $1.22 a share. Prior to news of Battlefield's issues, analysts surveyed by Thomson Reuters predicted $1.24 a share on $1.66 billion in revenue.

Rival video game producers including Take-Two Interactive (TTWO) of Grand Theft Auto fame and Activision Blizzard (ATVI), publisher of Call of Duty, sold off in sympathy. Take-Two shed 1.3% to $16.39 and Activision was down 2.7% to $16.78.

TheStreet Ratings team rates Electronic Arts Inc as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate Electronic Arts Inc (EA) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share and compelling growth in net income. However, as a counter to these strengths, we find that revenues have generally been declining."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 26.44% and other important driving factors, this stock has surged by 50.05% over the past year, outperforming the rise in the S&P 500 Index during the same period.
  • Electronic Arts Inc has improved earnings per share by 26.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, Electronic Arts Inc increased its bottom line by earning 32 cents a share vs. 21 cents a share in the prior year. This year, the market expects an improvement in earnings ($1.27 a share vs. 32 cents a share).
  • 49.21% is the gross profit margin for Electronic Arts Inc which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -39.28% is in-line with the industry average.
  • EA, with its decline in revenue, slightly underperformed the industry average of 6.3%. Since the same quarter one year prior, revenues slightly dropped by 2.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Software industry and the overall market, Electronic Arts Inc's return on equity is below that of both the industry average and the S&P 500.
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