Electronic Arts to Report Q3 Data: Should You Play This Game?


Electronic Arts (ERTS), a software maker whose colleagues include Activision Blizzard (ATVI), Microsoft (MSFT), Nintendo (NTDOY) and Sony (SNE), will be reporting third-quarter numbers on Monday, Feb. 8, after the market closes up shop. This is going to be an interesting one.

I doubt there are many market watchers out there who aren't aware of the problems in the video game industry; 2009 was not the best of years for the sector, and investors are hoping that 2010 will execute a rebound. However, EA has specific fundamental problems. The declines seen in its share price cannot be solely sourced to the macro conditions of the current console cycle.

According to Earnings.com, analysts are looking for the publisher to post 31 cents per share on the bottom line. Let's hope we get a beat. Last year at this time, 56 cents per share was generated. So, we're bracing for a sharp drop in per-share profit as it is.

Perhaps there's a chance for EA. Competitor THQ (THQI) issued Q3 data last week, booking an adjusted profit compared to a loss in the year-ago period. And Reuters says THQ's Q4 guidance was welcomed by Wall Street (although the Q3 income did miss). Maybe this might be an indicator of good things to come.

Then again, who knows. My colleague Mark Fightmaster discussed an earnings warning delivered by management last month. It covered the upcoming fiscal year. He did make a valid point in his piece: with expectations getting lower, any species of positive news could bring a pop.

I'm not willing to bet on a pop when it comes to shares of EA, however. An earnings trade is too risky in this case, in my opinion at least. I'm sure there will be many traders making bets ahead of the release, but I'm equally sure the bets will be adequately hedged. Going in without any sort of strategy would be unwise.

At the time of this writing, EA's stock was in the red when it came to all time periods (one-month, year-to-date, etc.) as indicated by DailyFinance quotes. Investors will be looking for any sort of catalyst in the conference call that will give them a reason to buy. I wish them the best of luck (from the sidelines, of course).

Disclosure: I don't own shares of any company mentioned; positions can change without notice.

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Last updated: September 06, 2010: 12:14 AM

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