Electronic Arts (ERTS) Makes Major Job Cuts As Q2 Profits Lag (Update)

November 9, 2009 5:30 PM EST

(Update with comments from analysts)

Electronic Arts (Nasdaq: ERTS) plans to cut 1,500 more jobs as the company pushes more restructuring following a reported a second quarter net loss of $1.21 per share, compared to the 97 cent loss reported in the year-ago quarter.

The majority of the cost cutting moves are expected to be executed by March 31, 2010, saving the company an estimated $100 million annually.

The company also reported that it plans to narrow its product portfolio. Going forward, the publisher of "Madden" football and "Need for Speed" will focus on titles that yield increased margin opportunities.

"We are making tough calls to cut cost in targeted areas and investing more in our biggest games and digital businesses," said John Riccitiello, Chief Executive Officer. "Today we are announcing a significant cut in our operating expenses."

Adjusted second quarter earnings for EA were 6 cents per share, missing the analyst estimate of 1 cent. Company revenue was $1.15 billion, slightly ahead of the consensus of $1.12 billion.

EA announced the acquisition of Playfish Limited, a leading social games company for approximately $275 million. Playfish will operate under the EA Interactive brand which focuses on games and media for the web and wireless space.

The company forecasts its 2010 fiscal year earnings per share at 70 cents to $1.00, compared to the analyst estimate of 89 cents per share. EA's forecasted revenue for 2010 is at $4.2 billion to $4.4 billion, versus the consensus of $4.26.



Analyst Comments:
Piper Jaffray analysts maintained an Underweight rating on Electronic Arts, citing positive is the new cost cutting plans and the acquisition of Playfish. However they said that due to this being the fourth restructuring plan in a year from the company, the acquisition of Playfish may be little more than a “show me” story. Piper Jaffray maintained a price target of $20.00 for EA.

Goldman Sachs maintained a Neutral rating on Electronic Arts, with a price target of $20.00. The weakening market for EA’s Nintendo Wii titles is one negative that Goldman Sachs sees for the potential growth of EA. However the restructuring is likely to increase incremental margins. The restructuring plan will cost the company $120 million to $150 million, but will result in an estimated $100 million in annual savings.

Shares of Electronic Arts are trading down following yesterday's reported earnings at $18.22, a 6.71 percent decline.

Related Categories

Corporate News
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• Piper Jaffray
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