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Analysts: Electronic Arts' Game Plan Encouraging
Analysts: Electronic Arts' Game Plan Encouraging
November 2, 2007 | By Leigh Alexander

November 2, 2007 | By Leigh Alexander
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Following Electronic Arts' quarterly results announcement, which saw sales led by 4.5 million copies of Madden, but revenue down by 18 percent to $640 million along with a slip to a $22 million loss from a $195 million profit due to accounting charges, industry analysts focused on the upside.

Citi's Brent Thill remained positive, commenting, "this is not business as usual" for EA, adding, "We believe [EA] has passed Level 1 of its new game plan, and this is a multi-level story with plenty of room left for improvement."

Though he cited "tired content and lethargic management" as previous drains for EA, Thill pointed to an upswing in the industry as a whole, and noted "[EA's] game plan has recently undergone a significant renovation while not disrupting too many changes, and a breadth of innovative titles will be unleashed over the next year which continues to improve the outlook for [EA]."

Thill did add that EA's overall revenue related to Nintendo's Wii leadership is "still disappointing," noting that sales of PS2 titles are still driving twice as much revenue as Wii titles. Still, he feels the company has "more tricks up its sleeve," and added, "We agree with [EA's] new approach. This new plan is likely to take multiple quarters to execute, stretching out the recovery period well beyond Q2’s upside."

Wedbush Morgan analyst Michael Pachter was also optimistic, commenting, "We do not endorse the company’s conservative stance on its earnings power," though he does note there are potential risks to EA's goal attainment, like possible deterioration of software prices in the industry as a whole and slower than expected consumer demand.

He also commented positively on EA's announced restructuring, which includes layoffs and the closing of its Chertsey, UK studio:

"EA expects to generate immediate savings of $25 – 30 million per year, and we anticipate that the business reorganization will position its four new 'labels' to further rationalize cost structure through better utilization of R&D staff, outsourcing of certain jobs, and more direct control of corporate staff functions."

Said Pachter, "In our view, EA is well along the path of cost containment, and its diverse portfolio of brands is sufficiently strong to allow
it to weather underperformance of one or more of its key franchises."


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