Video-Game Makers Struggle – Nintendo and EA Issue Profit Warnings

By: Anton Aleksandrov
Anton Aleksandrov
Anton is a freshly graduated economist from the States with passion for the world of finance. He is one… read more.
on Jan 31, 2013

Electronics Arts (NASDAQ:EA), the second-largest US video-game maker, saw its share price drop in extended trading after the company’s forecast for the fourth-quarter financial results fell short of analysts’ expectations.

EA’s share price shed 1.53 percent in afterhours trading to $14.85, after closing at $15.08 on the Nasdaq stock exchange. The company saidthat adjusted revenue in the three months to 31 March will be about $1.03-$1.13 billion (₤651-₤714 million). This is below Wall Street’s consensus of $1.22 billion (₤772 million).
“Based on Christmas, we’re a little bit worried about how strong the consumer market is,” Blake Jorgensen, chief financial officer, said in an interview yesterday. Bloomberg reported that EA is trying to offer more new games and updates online to offset declining consumer spending on packaged titles for consoles. Digital revenue increased by 8 percent to $407 million (₤257 million) in the last quarter, propelled by $100 million (₤63 million) in “FIFA 13” sales.

EA has lined up three big-budget game releases for its current quarter – a new Sims title, Dead Space 3 and Crysis 3. The company is also working on a future Battlefield game, which will most probably be made for the next-generation, dubbed Gen 4, consoles. More information on the Battlefield sequel is expected in the next three months.
During yesterday’s conference call one analyst asked chief executive John Riccitiello what would happen if the Gen 4 consoles didn’t produce the expected lift for the game business. The CEO replied that the data on game usage and game revenue is “exceptionally clear”. “We have added gamers to the universe each year in the last several years, and there is absolutely no sign that is going to slow down.”

**Nintendo Slips on Revised Sales Outlook**
It’s no fun for game makers today – Nintendo’s (TYO:7974) share price plunged the most in eight months in Osaka trading after the company forecast a second consecutive loss due to lower-than-expected sales of its consoles. The stock fell by 5.13 percent and closed at ¥8,870.
!m[Transition Period Between Console Generations Weighs Heavily on Market Incumbents](/uploads/story/1324/thumbs/pic1_inline.png)

Nintendo said it expects to sell four million Wii Us in the current fiscal quarter, down from a previous estimate of 5.5 million, and 15 million 3DS handheld players, down from 17.5 million. It also trimmed its full year sales estimate for Wii U software, down to 16 million units from 24 million, and reduced its 3DS software sales target to 50 million from 70 million.

Satoru Iwata, president of Nintendo, said that Wii U console sales weren’t as strong as the company expected, partly because of lags in software development. Nintendo isn’t planning on slashing prices on its new consoles but will instead aggressively release new titles in the second half of 2013.
The Japanese game-maker plans to add flagship games such as the Zelda and Mario Kart franchises to its Wii U collection. There will also be a fresh Super Mario title, referred to as a “3D Mario action game”. The game will be playable at E3 2013 – the Electronic Entertainment Expo.
**EA’s share price as of 31.01.2013, 08.30 GMT was $14.85 (afterhours trading).**
**Nintendo’s share price as of 31.01.2013, 08.30GMT, was ¥8,870.**

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