"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."