EA’s Worth $20 As Earnings Can Help Clear Uncertainty

Video gaming developer Electronic Arts (NASDAQ:EA) is scheduled to announce its Q4 financial results on May 7th. ^[1] Gaming industry observers will have a close eye on EA this Monday as the results will give a sneak peek in both Mass Effect 3 and Star Wars: The Old Republic (SWTOR), two of the recent most popular games of the company. Additionally, we will also be anticipating some clarifications from the company regarding the controversies that have surrounded EA throughout this quarter.

Q4 fiscal 2012 has been a rough quarter for the company, with EA losing nearly 30% of its stock value on the market. EA competes with other game developers like Activision Blizzard (NASDAQ:ATVI), Take-Two Interactive Software (NASDAQ:TTWO) and casual gaming mainstays such as  Zynga (NASDAQ:ZNGA)

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Q4 results will be primarily focused on Mass Effect 3 and Star Wars: The Old Republic

EA’s Q4 earnings on Monday is expected to be centered around Mass Effect 3 and SWTOR. While Mass Effect 3 dominated the gaming circles in 2012, thus becoming the highest selling game in March 2012, SWTOR is the biggest bet of the company against arch rival Activision’s World of Warcraft.

Monday’s earnings will also clarify how many of  the 1.7 million of total SWTOR subscribers are actually beyond the initial free trial users. Recently there have been apprehensions in the market that SWTOR is losing its steam in the U.S, which were also fueled by EA’s recent decision of launching SWTOR in 38 new countries. In addition to the total subs till date, we will also be closely watching EA’s future strategy for the game particularly in the U.S.

Rumors surrounding EA warrants explanation

For the major part of Q4, EA was in the news for all the wrong reasons. First the company was judged “The worst company in America” by The Consumerist. Then there were the rumors that EA was planning to lay off more than 10% of the company’s staff. The rumors of a lay off panicked the investors, resulting in a massive decline of EA’s stock on the market and forcing the company to clarify its stand on the issue.

Recently, the markets were again abuzz by the rumors that Nexon, a South Korean developer and publisher of free-to-play games currently headquartered in Tokyo has offered to buy out EA. While the news positively impacted the stock price, it did tarnish the image of EA, often considered a pioneer of video games in America by demonstrating EA as a potential vulnerable target for acquisition. See: EA Gains On Nexon Takeover Rumors, $20 Fair Value

We believe Q4 earnings release will be the perfect time for the company to clear the air regarding the controversies that have surrounded EA to regain the lost investor confidence.

Trefis EA price estimate stands at $20.62, which is roughly 30% above its current market price.

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1. EA to release Q4 results on May 7th, Source: EA IR [↩]