Grildon Tundy
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Stock closed yesterday at $142.35. Opened today at $117.50, a 17% decrease.
Wedbush analysts say 'the game isn't over yet' for Electronic Arts, thanks to robust pipeline in years ahead
After some two years of strong growth, Electronic Arts Inc.'s key soccer-gaming segment is struggling to keep up the momentum. And despite good reviews, its role-playing game "Dragon Age: The Veilguard" has also showed signs of underperforming.
But after those issues prompted the videogame maker to cut its outlook on Wednesday ahead of its third-quarter results next month, Wall Street analysts were left searching for the exact root of EA's (EA) troubles, whether it be possible fatigue among players or holiday travel. And while some analysts downgraded the stock, others found reasons to stay optimistic.
"EA fumbled badly in [the third quarter] and will be in the penalty box until investors appreciate the magnitude of the earnings shortfall," Wedbush analysts said in a research note dated Wednesday. "EA shares will likely trade sideways after settling on the preannouncement, and we don't expect material catalysts to drive them higher until the company reports earnings on February 4."
They added: "It is clear that management believes the weakness in Global Football is ongoing," and said EA's tempered forecast "suggests to us that the company was caught off guard by the shortfall and isn't certain about how to address it."
Shares of EA - known for its FC and Madden sports franchises - tumbled 16.7% on Thursday. The drop saw the stock post its largest percentage decrease since Oct. 31, 2008, when it fell 17.9%. The stock is down nearly 15% over the past 12 months.
EA on Wednesday said it now expects a mid-single-digit decline for live-services net bookings - an important demand metric - for this fiscal year, due in large part to a recent slowdown in its global football-gaming segment. EA's fiscal year ends on March 31.
Net bookings are a gauge of products sold physically and digitally. Live services include subscriptions and other offerings beyond the games themselves.
Meanwhile, EA said "Veilguard" engaged around 1.5 million players during the quarter. That was "down nearly 50% from the company's expectations," it said.
EA said it expects to benefit from the launch of more well-known titles in its fiscal 2026. It added that a refresh in gameplay for its "EA Sports FC 25" soccer game had received positive feedback from players. But analysts said the company's road to recovery could be bumpy.
"The magnitude of the shortfall is concerning, especially coming so closely after the optimistic tone struck on September's Investor Day," Raymond James analysts said on Thursday. They downgraded the stock to market perform.
In September, EA said it expected to outpace market growth and expand margins through its fiscal 2027, and it laid out plans to double its global audience to more than 1 billion over the next five years. The company also said it expected "sustained growth" in EA Sports, with hopes of becoming "the most valuable sports business."
"The company is pointing to green shoots in recent FC content updates which give confidence in [fiscal 2026] growth, but the near-term path is going to be rocky," the Raymond James analysts said. "Given the lower visibility into near-term trends in the company's flagship franchise and the doubts its casts on forward execution, we move to the sidelines."
The analysts there said that anecdotally, they'd "heard mounting player complaints about stale content and monetization schemes." But they said the level of complaining wasn't any greater than normal.
BofA analysts on Thursday also said that the exact reason for the drop-off in soccer-game enthusiasm was unclear. They said "possible factors include mis-execution, seasonal factors such as holiday travels, or potentially structural factors such as a saturated global player base."
"Without FC as a main growth engine, we find it difficult to envision a future where EA could sustainably outgrow the industry," they said. Analysts there downgraded EA shares to neutral.
The Wedbush analysts also said that EA provided little exact detail about the weaker trends. They said they believed that overall game sales were pulled forward into the second quarter due to the launch of "CollegeFootball 25," and that sales of "Madden NFL" and "EA Sports FC" were roughly flat year over year in EA's fiscal third quarter.
Last year, some videogame developers, including EA, announced layoffs after pandemic-era demand gave way in the face of higher prices and other options for things to do. Industry tracker Newzoo said in a report that last year, the amount of time people around the world spent gaming had dropped "substantially" since the first quarter of 2021, when lockdowns kept many people stuck indoors.
"A smaller number of big studios and games account for an increasing share of playtime hours and revenues," the Newzoo report said. "This confirms the ongoing consolidation and the difficulty of launching a successful game in this market."
Some analysts were still confident about EA's longer-term prospects.
Wedbush analysts noted an array of potential new titles - from possible "Star Wars" games and a "Need for Speed" sequel. "We believe EA has a sufficiently strong lineup to weather this mishap, and to recover in [fiscal 2026]," they said, adding that fiscal 2027 was "loaded."
And analysts at Oppenheimer said that the stock's drop before the market open on Thursday likely "captured the majority of the downside."
"Our analysis suggests the 12- to 18-month risk/reward is favorable, despite near-term challenges," they said.
