Seidman Investment Portfolio Organization


Company:  Electronic Arts, Inc.

Sector:  Information Technology

Fall '09 Sell Summary

As of October 2009, Electronic Arts was in the midst of 4 years of declining earnings, culminating in a loss of $3.40 per share in FY 2009. In addition, Electronic Arts is in a very competitive industry with declining margins. Competitors Activision and Nintendo had more eagerly anticipated holiday releases, and sales of Electronic Arts stand-out performers, such as Madden and FIFA, were declining for the first time in franchise history. Potential risks to the sale include a potential out-of-the-blue holiday blockbuster and hardware price cuts spurring greater demand for software.

Fall '09 Summary

Founded in 1982, Electronic Arts, Inc. engages in the development, marketing, publishing, and distribution of video game software and content for gaming consoles and computers.  ERTS is responsible for some of the most well-known brands in gaming, including Madden®, The Sims®, FIFA®, Rock Band®, and Command and Conquer®.  The company has recently emphasized a global focus, with overseas sales accounting for 43% of 2008 revenue.

The recent economic turmoil has hurt Electronic Arts over the last year, and the company posted a loss of $1.33 per share in FY 2008.  Despite its dismal performance last year, ERTS plans to a promising upcoming slate of video games in the upcoming year including the newest installments of its FIFA® and NHL® series, Beatles Rock Band®, and two new installments of the popular Spore® series.  The performance of ERTS in the coming months will depend heavily on the results of the holiday shopping season, which is perennially the strongest earning period for the company.  With an estimated EPS of $0.30 for FY 2009 and a current stock price of $19, this stock appears to be overvalued even if it can achieve its lofty holiday sales target.

After considering all factors, ERTS may be on the chopping block for IPO in the upcoming school year.

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Page last modified March 11, 2012