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Bear of the Day: Electronic Arts (EA)

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Electronic Arts (EA - Free Report) is a well-known gaming company that develops, markets and publishes game content and services that can be played on consoles, PCs, mobile phones, and tablets. Some of its established brands include FIFA, Madden NFL, Star Wars, Battlefield, The Sims, and Need for Speed.

During the first half of 2018, shares of EA seemed like they could not be stopped, and were up over 36% heading into its first-quarter earnings report.

Its Q1 performance was mixed overall, but EA did beat the Zacks Consensus Estimate on both the top and bottom line; the company noted strong results in its sports franchises, Madden NFL and FIFA. Additionally, digital net bookings were up 13% year-over-year, hitting $3.55 billion.

But, lower-than-expected guidance and a delayed release of Battlefield V, one of its biggest brands, took a huge hit on the stock.

In a press release, CEO and CFO Blake Jorgensen said, "We're updating our fiscal year guidance to reflect the updated launch date for Battlefield V, the ongoing impact of foreign exchange rate changes, and our current outlook for our mobile business." 

EA now expects net bookings to be $5.2 billion, down from $5.55 billion; roughly $115 million of this change is driven by foreign exchange rate movements.

With Battlefield V, EA pushed the release date back by a month. There are preliminary reports out suggesting that the game will bring in disappointing sales numbers, especially compared to Activision’s (ATVI - Free Report) upcoming Call of Duty game and Take Two’s (TTWO - Free Report) Red Dead Redemption 2, two of the most highly-anticipated game releases this fall.

Because of disappointing bookings guidance and the announcement of the Battlefield V delay, 13 analysts lowered their estimates for fiscal 2019. The current consensus has fallen 38 cents from $5.03 to $4.65 in the last 60 days. The outlook for 2020 has fallen as well, down 26 cents during the same time period.

EA is now a #5 (Strong Sell) on the Zacks Rank.

Going forward, it may actually be a good thing for EA to delay the release of Battlefield V from October to November; this will give developers more time to work on it, and fix any big issues.

It’s also important to remember that EA is not dependent on a single game, no matter how much the market is focused on one. EA has a huge, diverse portfolio of core game titles that will be beneficial to it in the long-term.

If you’re an investor looking for a video game stock to add to your portfolio, you may want to consider Glu Mobile Inc. (GLUU - Free Report) . This global publisher of mobile games is a #2 (Buy) on the Zacks Rank, and currently expects about 157% earnings growth for the year.

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