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Analyst: More EA Staff, Franchise Cuts Likely

Kris Graft's picture

By Kris Graft

December 8, 2008

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Electronic Arts is likely headed for more staff cuts on lower retail sales of Need for Speed: Undercover, Mirror's Edge and Rock Band 2, Lazard Capital Markets analyst Colin Sebastian said in a Monday research note.

"We believe further cost and franchise reductions are likely," he said. "Importantly, we believe EA is continuing to review its cost structure and franchise base, and it is possible that management will announce further cuts in headcount and the development pipeline (including existing franchises) over the coming quarters."

In October, EA cut around 600 jobs, or about 6 percent of its total global workforce. The firm said the layoffs would save $50 million annually.

Sebastian forecasted further cuts in light of "mixed" channel checks that showed lower than expected sales of EA titles Mirror's Edge, Need for Speed: Undercover and Rock Band 2. The retail upside for EA was strong sales of Left 4 Dead, Dead Space and FIFA 09.

The analyst reduced fiscal Q3 revenue and earnings per share estimates to $2.07 billion and $1.23, from $2.14 and $1.30.

He also lowered fiscal 2010 estimates amidst "greater uncertainly over next year’s product slate, including contributions from the Rock Band franchise and EA Casual label." A proliferation of lower-margin revenues from distribution deals with developers such as Grasshopper Manufacture and id Software also may affect 2010 earnings. In effect, he lowered fiscal 2010 revenue and EPS estimates to $5.45 billion and $1.55, from $5.6 billion and $1.75.

Sebastian was still optimistic that EA's current investments in new IP and emerging business models could pay off in the future, and alongside M&A opportunities, could help generate year-on-year revenue growth.

EA shares were up 7 percent to $21.43 at noon on Monday. Sebastian rates the shares at "hold."

nathaniel.kent's picture
On December 9th nathaniel.kent said:

Seems to me that EA is actually not doing too badly, the recent negative headlines aside - actually coming up with new IPs (Mirror's Edge and Dead Space) and promoting them as triple-A franchises is a move that will surely boost the sustainability of their revenue streams in the future. Seems to me they are maybe learning from Ubi Soft in that regard?

I can't say that either of those new games appeals to me much (or any of their Xmas line-up, to be honest), but you have to admire them for going one step beyond just churning out sequels. Taking risks on new properties - and on 3rd party distribution deals like the one that led to Left 4 Dead being in their stable - is surely something that's good for the industry as a whole?

XERO's picture
On December 9th XERO said:

as a point of reference i live in the suburbs of new york city. that stated, i cannot afford to go out and buy all the $60.00 games i was once able to do this time last year. look at gamestop, ther used game section is always crowded and their special deals on pre-owned games makes the more affordable (also no royalties to the game developer....). maybe the price point should be adjusted as a sales stimulus.

alex.court1987's picture
On December 9th alex.court1987 said:

**Just to say I am aware EA is a Games Publishing Studio aswell as Games developing Studio**

I believe EA have gone about buisness the wrong way, sure they have made profits but they have gone around buying unique companys like Bioware and Lionhead Studios, only to tarnish them with the EA Branding, they didnt make Left 4 Dead only published it for Valve for the console. EA should look at every game as a new oppertunity, they and many other companies like UBiSoft have flooded the gaming market with games which have no difference between one another, for example it took EA 6 years to change their FIFA engine from 2002 to 2008, look how much PES dominated them until FIFA 08 which brought a new engine and boosted their sales by loads. People dont want the different games tarnished with the same brush, people want unique experiences, classic example of this was Westwood Studios, correct me if i am wrong, C&C was one of the best RTS games going, EA buy them out sure generals was decent but lacked what the originals had the same goes for C&C3 and Red Alert 3 (which I could not play for more than 10 minutes).

Quake and Doom is a good example of two games with similar genre but different experiences, pretty much the same type of game but they were worlds apart, anyone could sit there and tell the two apart and still enjoying playing them.

EA and other publishing companies need to take a step back and look what games like Diablo, C&C, Starcraft, Elder Scrolls, Final Fantasy, Quake and Doom brought to the table for us and what made us be able to tell the diffrerence between the next one