Sluggish Sports Franchises Weighing on EA Stock

by Adam Benjamin | October 3, 2013 2:31 pm

Electronic Arts (EA[1]) is under pressure as the latest editions of Madden and FIFA — its two biggest sports franchises — came out with slow starts this fall, which is a huge concern for EA stock investors.

Sales in the important first week of release for Madden 25 were down nearly 40%[2] compared to last year’s entry, despite being an anniversary year for the franchise. Meanwhile, in FIFA 14′s first week in the U.K., sales were down 24% — FIFA 13 and FIFA 12 posted YOY sales increases of 92% and 23% in their first weeks. Those numbers worried Cowen and Co. analyst Doug Creutz, who says he thinks overall sales will be down 7% year-over-year[3].

Why does this matter? Because sports titles are a major portion of EA’s revenues.

Madden, FIFA and its NCAA football franchise — which is going bye-bye; Electronic Arts says it won’t be making a college football title next year[4] — account for at least a quarter of annual revenues, so these declines could have a significant effect on the bottom line, and thus on EA stock.

Both Madden and FIFA were released for consoles that are the end of their lifecycles, so it’s possible that a large number of gamers are waiting to pick up copies for the Xbox One or PS4. In fact, Madden 25 is one of the top 10 pre-ordered games on each, so there’s some legitimacy to that. Both consoles release next month, so we should know by year’s end whether it truly was a factor in sales.

Still, sports-related headlines haven’t been good for EA stock. EA is down more than 6% in the past month, compared to a 2% gain for the S&P 500. And the announcement of Andrew Wilson as the company’s new CEO[5] has done nothing to slow that decline — EA stock has fallen 5% since the announcement.

Perhaps ironically, Wilson comes from EA’s sports division.

Electronic Arts’ prospects aren’t completely grim. The company has plenty of valuable franchises in its talons, including Battlefield, Star Wars: Battlefront and The Sims. And the upcoming release of the next-generation consoles should give a boost to launch titles. Battlefield 4 is leading the list of PS4 pre-orders, and comes in second for the Xbox One.

EA also is working on mobile games, with plans to release another 15 titles in the next year[6]. Mobile games have been eating away at consoles for a few years, so EA is wise to keep churning out titles on both fronts.

So, no, faltering sports franchises won’t immediately sink EA’s stock, but they’re becoming something of a weight around EA’s neck. If sales don’t jump after the Xbox One and PS4 are released, investors might have legitimate reason to worry.

Adam Benjamin is an Assistant Editor of InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. EA: http://studio-5.financialcontent.com/investplace/quote?Symbol=EA
  2. down nearly 40%: http://investorplace.com/2013/09/madden-nfl-25-sales-disappoint/
  3. overall sales will be down 7% year-over-year: http://www.businessweek.com/ap/2013-10-02/electronic-arts-shares-fall-on-sales-worries
  4. won’t be making a college football title next year: http://www.cbssports.com/collegefootball/eye-on-college-football/23859383/ea-sports-no-ncaa-football-15-video-game-series-possibly-done
  5. new CEO: http://investorplace.com/2013/09/electronic-arts-names-new-ceo/
  6. another 15 titles in the next year: http://seekingalpha.com/article/1720942-despite-electronic-arts-recent-troubles-heres-why-its-still-a-strong-buy?source=yahoo

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