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8th July 2021

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Electronic Arts could axe staff and franchises - analyst

Lazard Capital Markets reduces estimates following under performance of new titles

Electronic Arts could cut jobs and halt work on some of its franchises in the coming months, according to analyst Colin Sebastian.

Sebastian's firm, Lazard Capital Markets, is also reducing its estimates for the publisher, after slow performance of titles Need for Speed: Underground, Mirror's Edge and Rock Band 2.

"We are also lowering our [financial year] 2010 estimates, due in part to greater uncertainly over next year’s product slate, including contributions from the Rock Band franchise and EA Casual label," wrote Sebastian in his latest note to investors.

Lazard puts its revised EA third quarter estimates at USD 2.07 billion and USD 1.23 per share, down from USD 2.14 billion and USD 1.30 per share.

"We believe further cost and franchise reductions are likely," detailed Sebastian.

"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."

Sebastian said that a handful of EA titles have sold "fairly well" during the quarter, including Dead Space, FIFA 09 and Left4Dead, which has offset the poor performance of other new releases.

"While the videogame industry continues to show some resilience in the face of a very challenging consumer environment, strength does not appear to be across the board, and we believe that several EA titles are under performing expectations at retail.

"Specifically, our checks indicate that sell-through trends of key holiday releases Need for Speed: Undercover, Rock Band 2, and Mirror’s Edge remain mixed, which may reflect some fatigue overall in the music and racing genres," added Sebastian.

However, despite the poor performance midway through the current console lifecycle, Lazard Capital Markets expects EA to benefit in the long-term as it sees the benefits of its online opportunities and seeks acquisition of new development and publishing talent.

"We believe EA will leverage its early investments and significant resources in online distribution, emerging business models (e.g., free-to-play), and geographical diversity to maintain growth of its core franchise base, as well as further expand its partners/distribution business.

"We also believe management will continue to opportunistically seek further acquisition candidates, including developers and/or publishers with proven franchise successes."

Celebrating employer excellence in the video games industry

8th July 2021

Submit your company

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