Analyst investor group New Constructs has labelled EA as one of the most dangerous stocks to invest in this month with the publisher issuing misleading figures to investors.
Noting that shares dived in EA following the news that DICE projects had been suspended until Battlefield 4's issues are fixed analyst David Trainer wrote:
"It’s unfortunate for EA that it had to divert resources from future games to fix Battlefield 4, but the company really didn’t have much of a choice, as the shooter is too important of a franchise. In the fiscal year 2012, Battlefield 3 accounted for 11% of EA’s revenue. Only the FIFA Soccer franchise contributed more to the top line.
"Console game sales are falling, and while FIFA has been a stalwart performer for EA, almost all its other franchises are struggling. The company stopped producing NCAA Basketball due to lack of interest after 2009, and contract disputes with the NCAA put the future of its college football games in doubt. From 2009 to 2013, EA’s revenue declined by 3% compounded annually."
It's also noted that investors in the company need to look beyond reported financial results. The company revealed a pre-tax income of $46 million however, New Constructs found that Net Operating Profit After-Tax (NOPAT) had fallen by 33 per cent. Trainer refers to this as an "accounting trick".
Also noted as an impediment for EA is the company's poor reputation:
"EA has a major issue with its perception among consumers. For the past two years, readers of The Consumerist voted EA as the worst company in America by a landslide over Bank of America (BAC). Gamers have long expressed their distaste for EA’s track record of glitchy games. In the mobile gaming segment, the company has acquired a reputation for trying to squeeze every last penny out of gamers through micro transactions. EA’s efforts to fix Battlefield 4 likely stem from its desire to combat its poor reputation."
The positive news for EA is its strength in the mobile market but reflecting on Zynga New Constructs notes that casual gaming tastes change swiftly and past success is not a guarantee of future prospects.
In addition, "flawed game releases, declining console sales, and licensing disputes" dampen EA's outlook.
