Lazard: EA To Report Q3 Earnings Decline, Positive Outlook

Analyst firm Lazard Capital Markets has predicted that major game publisher Electronic Arts will report earnings this week that will verify a loss of market share for the company's third quarter, adding that slow U.S. sales will be partially offset by currency benefits, top selling European releases, and increased revenue from internet services. In a research note to investors, Lazard analyst Colin Sebastian has commented that the firm anticipates EA to report revenue of $1.25 billion, which would represent a 2 percent decline from the same period last year. The firm has maintained its rating of EA stock as being a "buy", with a price target of $60, compared to a current stock price of $48.30. The estimate is in contrast to earlier predictions made by market analyst firm Wedbush Morgan Securities, which announced that EA would meet or “modestly beat” expectations with its third quarter earnings. Lazard's estimate is in line with EA's previously issued guidance, though, slightly below consensus of $1.27 billion. EA is scheduled to report its fiscal third quarter earnings on February 1. Sebastian adds that according to NPD data, sales of EA titles have experienced a sharp 9 percent drop from the previous year's third quarter, commenting, “We believe that revenues in the quarter were impacted by the lack of a new Harry Potter (Harry Potter and the Goblet of Fire sold >4 million units in F3Q06), slower retail sales of Need for Speed domestically, and a limited contribution from new release Superman Returns.” He added: “However, we believe that currency benefits, several top titles in Europe, and growing Internet Services revenues could help offset the company’s challenges in the U.S. market.” Looking ahead to the March quarter, the analyst cited positive expectations in light of a strong product line-up. While EA has yet to commit to firm release dates for a number of already announced titles for the upcoming period, the firm expects significant contributions from high profile releases such as NCAA March Madness 07 (Xbox 360, PS2), Medal of Honor Vanguard (PS2, Wii), Command & Conquer 3 Tiberium Wars (PC, Xbox 360) and forthcoming expansions for The Sims 2. The firm also highlighted EA's continued interest with development on both the Nintendo DS and Wii platforms, with the company currently planning seven titles across both platforms for release in the fourth quarter. However, Sebastian conceded that some of these or other titles “appear to be on the cusp of the quarter,” and thus could be pushed out into fiscal 2008. Finally, in looking to 2008, the analyst wrote that while the company does not expect EA to report its formal guidance for fiscal 2008 until April or May, Lazard is “comfortable” with its revenue estimates of $3.53 billion. “We continue to believe that EA is poised to be a key beneficiary from accelerating industry sales over the next 2-3 years with leading market share and an improving product lineup,” commented Sebastian. “In 2007, we note EA release slate includes sequels to franchises such as Burnout 5 and Harry Potter and the Order of the Phoenix, new properties Army of Two, Spore, Crysis, Skate, and Simpsons, along with the company’s annual lineup of EA Sports titles.” He continued: “In addition, we believe EA continues to spend aggressively on R&D, including investments to build market share on Nintendo platforms (Wii and DS), as well as emerging revenue streams, such as digital distribution/Internet services, mobile and international expansion."