EA Learns Lesson of Hot Development Turned Failure (ERTS)

Electronic Arts Inc. (NASDAQ: ERTS) shares poor performance stood out even on a down day.  It has worked on a game since late 2006 or early 2007 called Tiberium.  This first-person shooter was in the same universe as its Command & Conquer series.  Apparently, the designs and engines weren’t jiving together, or at least not as well as it wanted for a game that was set to be released in 2009.  It had already been delayed.  EA has now scrapped the project saying that it had design issues from the start.

EA has been steadily building its video game empire.  It has madeacquisitions where it could to fill certain voids and to keep certaingames akin to Halo from getting too much of the industry.  So, today’s 5.5% drop to $34.97 we are scratching our heads.  Sure, the sector isin a soft spot now that all of the game console platforms areessentially two-years mature and now that there are no new consoles onthe horizon.

Citigroup has lowered estimates for the company due to softeningsoftware sales expectations.  Either way, much of this should have beenknown.  The lack of new consoles coming to market will likely take awaymuch of the strength of 2007.  But new titles have continued to sellwell.  Shares closed at $34.97 today and its shares touched the 52-weeklow as its trading range of the last year is $34.47 to $61.62.  We havebeen expecting this sector to take a breather and it has beenimpossible to not notice a recent 52-week low in GameStop. 

The economy is still getting worse and we expect a slow spot forgames.  It is impossible to call a bottom just because of a sell-off orjust on price and value alone.  That is an amateur’s guessing game.But when these industry leaders are close to 50% off of their highs, atsome point the bad news has to start getting factored in.  You mightnot want to jump in, but keeping it on your watch list may be a goodidea in the coming days and weeks.

Here was a set of those screen shots for Tiberium from Team Xbox.

Jon C. Ogg
October 1, 2008