EA should cancel one-third of its games and cut 20% of its developers, analyst says

Jeetil Patel, a game industry analyst with Deutsche Bank Securities, is not known to be particularly kind in his assessments of Electronic Arts Inc. He gives the video game publisher's stock a "sell" rating, as in, "get out while you still can."

His report this morning on the Redwood City game company's announcement that it would miss financial targets for fiscal 2009 because of surprisingly slow holiday sales was characteristically scathing:

The company needs to narrow its product lineup and development staff to drive operating profit dollar improvements. ... We think that EA may need to cut up to one-third of its titles and 20% of development staff to right-size the business, clearly indicating that the wrong product strategy has been employed.

In response, the game company's spokesman, Jeff Brown said, "EA is still committed to developing high-quality games and taking creative risks. We've got a solid process for the cost-cutting exercise and will do what's best for our shareholders, employees and consumers."

Patel said in an e-mail to subscribers that EA was hit by a combination of lower sales for its older titles, smaller orders from skittish retailers and a reluctance among cautious consumers to buy games that were not among the top five bestsellers. He summed up EA's troubles by saying, "Too many titles and not enough productivity per title."

As a result, he lowered his estimates of EA's sales more than 20% to $4 billion, and profit 54% to 66 cents a share. He also dropped his price target for EA's stock 31% to $13.

The company's stock got closer to that target price today: It dropped $2.35, or 12%, to $17, as investors digested the warning of a shortfall.

-- Alex Pham

Photo: Screenshot of the game Facebreaker. Credit: Electronic Arts

Comments

[Paul Berger]

Very interesting. I think with the economy hurting badly most consumers will resort to video games, online gambling such as sites like Betsoft Gaming, and video websites like YouTube, MetaCafe, and the other big boys. Basically what I'm trying to say is online content and video games are going to take the place of extravagant dinners, nights out, etc. as the economy is starting to affect everyone.

Sorry for ranting!