More Recession Carnage For Video Games (ERTS, ATVI, GME, THQI, TTWO)

Electronic Arts Inc. (NASDAQ: ERTS) signaled about six weeks ago that the video game industry wasn’t recession-proof.  It turns out that the company (and likely the sector) is not even as recession-resistant as many had once hoped.  The video game giant said that it will fall short of estimates due to lower-than-expected sales across North America and Europe.  The company noted that its holiday line-up is not meeting sales expectations.  So much for the couch potato and stay-at-home demographics holding up.

EA does not expect to provide updated financial guidance for fiscal2009 prior to reporting its third quarter results in February2009.  Here is a snapshot of its prior guidance given on October 30 (copied from our own October 30 review):

• The company’s guidance is on a non-GAAP basis.  EA now sees $1.00 to$1.40 EPS, which compared with $1.06 from fiscal March-2008 and it seesnet revenues between $5.0 and $5.3 billion, a gain of 24% to 32% fromthe $4.02 billion in the March-2008 year.  There is just one problemhere.  First Call estimates are $1.42 EPS and $5.04 billion in revenues.

As of today, the estimates were lower, but not by much.  Those forwardFiscal March-2009 numbers are now $1.16 EPS on $5.06 billion inrevenue.  The company is continuing to reduce its headcount and totrim its portfolio.

EA stock was already having a bad day by closing down more than 11% at$19.35. But bad went to worse as shares are down another 7% or so at$17.87 in the after-hours session.  Its 52-week trading range is $16.56to $60.35.

This is also weighing on other video game publishers as well.Activision Blizzard, Inc. (NASDAQ: ATVI) fell more than 8% today to $10.09and its 52-week trading range is $9.22 to $19.28. Its shares are down more than 2% at $9.85 in the after-hours reaction.

The video game retail outlet GameStop Corp. (NYSE: GME) closed down 7%at $23.23 in regular trading today, and its shares are down more than 3% at$22.47.

THQ Inc. (NASDAQ: THQI) and Take-Two Interactive (NASDAQ: TTWO) haveso far both managed to escape the carnage.  THQ might have lucked out because it is down from a 52-week high of $29.94.  Itsstock closed up 0.6% at $5.03 and it looksunchanged in the after-hours session.  Take-Two closed up 0.3% at$12.12, and its 52-week trading range is $9.35 to $27.95.

It sounds like there is a new video game for everyone this Christmas and Holiday season….. Coal.

Jon C. Ogg
December 9, 2008