While the big news today may be the release of Activision Blizzard's (ATVI) new Call of Duty title, there's other stuff going on in the world of video games for investors to ponder. Electronic Arts (ERTS) issued its Q2 report yesterday after the bell. The numbers weren't too bad, but the market was not excited at all by them, probably because it knows that EA still has a lot of work to do in terms of better positioning itself for the future.
Adjusted revenues were up a scant 2%. Earnings per share, excluding items, actually showed a profit of 6 cents. This was a lot better than the loss of 6 cents per share seen in the year-ago frame. The company also managed to generate a small amount of cash from operations in the quarter instead of using a whole bunch like it did last time around.
This article at TheStreet.com mentions the problems I alluded to in my opening paragraph and provides a nice summary of the situation. At the end of the day, EA needs an improved pipeline, a more comprehensive marketing strategy, and a realization that making video games is like making movies -- i.e., the financial risk of programming them is increasing every year, so the cost of development must be addressed in a manner proportionate to that risk.
There are many headwinds in the industry right now. The Nintendo (NTDOY) Wii, as an example, is no longer the phenomenon it once was. Consumers are resistant to full-priced games (this point is of real concern). And even though the recession seems to have finally been tamed, the residual effects of the beast will be felt during the holiday season.
I covered Activision Blizzard's earnings last week. I mentioned the retreat of my bullish tendencies on the stock in the piece. Well, if my bullish tendencies have been reduced on what I believe to be the strongest publisher in the sector, I can tell you most certainly that I am bearish on EA. Sure, you could do some trading with it, but I'd be careful about getting too long this name until we see how the holiday is shaping up for the company's portfolio of software.
Disclosure: I own Activision Blizzard; positions can change without notice.
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