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Electronic Arts’ Best Quarter May Be Behind It

Challenges loom ahead for the rest of 2011


Bolstered by strong sales of games like Dead Space 2, Dragon Age II, and Bulletstorm, Electronic Arts (NASDAQ:ERTS) beat Wall Street’s earnings expectations late Wednesday and saw its stock rise 7% in recent Thursday trading.

But the rest of the year may not go as smoothly. While it once appeared like the company would be able to maintain its positive momentum, its catalog of late-2011 releases are under threat, putting recent gains at risk.

The most significant issues face the company’s lucrative EA Sports titles. The looming NFL lockout and the absence of the World Cup tournament are putting a significant damper on Madden NFL 2012 and FIFA 2012, entries in the company’s perennial best-selling franchises.

The lack of a new major game in the company’s NBA Live (changed to NBA Elite last year, before being cancelled) series is also a challenge, and an NBA work stoppage looms this fall. EA CEO John Riccitello said that these problems represent a potential “$250 million revenue challenge” for fiscal 2012, and the company adjusted its forecast to account for the worst. That’s a small comfort to shareholders banking on strong sports game sales.

The other problem is that EA’s multiplayer online game Star Wars: The Old Republic, intended as a competitor to Activision Blizzard’s (NASDAQ:ATVI) World of Warcraft, is likely going to be delayed until next year (although the company has scheduled it for a release in the second half of 2011). Having already spent massive sums on the game’s development — costs have been rumored to be everywhere between $80 million and $300 million — EA needs to have its online Star Wars game ready for consumers before Blizzard reveals its World of Warcraft follow-up, code-named Titan.

EA’s digital games business, including social games on Facebook and mobile games on Apple’s (NASDAQ:AAPL) iPhone, remain a bright spot for the rest of 2011. The company’s digital sales for the previous fiscal year totaled $811 million, handily beating expectations of just $750 million. Its digital initiatives continue to grow by leaps and bounds, and on Tuesday, EA acquired mobile and social game maker Firemint, maker of the popular iPhone game Flight Control, for around $25 million.

Unfortunately, the company’s digital business only makes up 20% of overall revenue. With uncertainty surrounding the company’s traditional game offerings for the rest of the year, a stock runup from of more than 40% since late January may be hard to repeat anytime soon.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

Article printed from InvestorPlace Media,

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