So the economy is still hurting and companies across the board are looking for the best strategies possible to ensure stability and viability. To be sure, the sports industry has not dodged the economic bullet. But one company provides a lesson for how to navigate these testy times.
Electronic Arts, a titan in the sports videogame market, recently reported a third quarter net loss of $641 million, or $2 per share. This compares to a $33 million loss for the same quarter a year earlier. Citing poor holiday sales, the maker of Madden, FIFA Soccer and Tiger Woods Golf has released considerably more conservative forecast projections.
But despite these poor numbers, EA shares rose 6.1% in after-hours trading the other day. How could the share price rise in the face of such crummy numbers? For starters, the company has been transparent and forthright regarding their losses. So investors were not shocked by the poor numbers—they expected them.
So this accounts for why the stock did not tank upon the earnings’ release. But why then did the share value actually increase? It turns out that EA has been proactive and vocal about its plans to regroup and recharge. EA has made the decision to tighten its belt by focusing on their most successful products and extracting maximum value from their best brands. Thus the decision has been made to delay work on niche products such as “The Sims 3” and to transfer focus to their more popular games such as the Madden franchise. Furthermore, EA plans on cutting 1,100 jobs and closing twelve facilities.
So investors were calmed and even encouraged by EA’s comprehensive and robust war plan to get the company back to posting strong profits. Indeed, the gaming company forecasts per share earnings to fall between a five-cent loss and a 40 cent profit. When compared to this years earnings drop off of $3.29 for this fiscal year, that’s quite an improvement. EA’s plan to pare back on niche products and to focus on aggressive marketing for their best products position’s them nicely to weather the storm.
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4 comments:
EA needs to come out with some killer titles. Madden is a great cash cow, but they need something new to keep the lights on.
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