Electronic Arts (NASDAQ:EA) has been sailing through troubled waters for quite some time. In fact, the company has underperformed so much that it had been named as the “Worst Company in America” by Consumerist.
Not the right moves
EA had offended its users last year with two of its games, namely SimCity and Battlefield 4. First, let’s talk about SimCity. Its launch became a shipwreck when the company tried to enforce internet connectivity on to gamers, which ultimately ended up with overloaded servers, and destroyed the game play. Secondly, Battlefield 4 was a highly anticipated game as the gamers expected that it could be the answer to Activision Blizzard’s Call of Duty: Ghosts, but unfortunately the game was full of bugs and errors.
In addition, executives at EA have been accused of promising to both gamers and investors with Battlefield 4, but after its disappointment, the company has been facing a legal row. In fact, the situation was so intense that the management was forced to halt its game development temporarily until the Battlefield issue was resolved. This is a matter of great concern for the marquee game, which is EA’s most successful franchise.
- Warning! GuruFocus has detected 4 Warning Signs with EA. Click here to check it out.
- EA 15-Year Financial Data
- The intrinsic value of EA
- Peter Lynch Chart of EA
Competitors taking advantage
All these issues caused EA to lose its market share to rivals such as Activision, which is gaining momentum as compared to the former. According to a report by MCV, in the U.K., Call of Duty: Ghosts sold around 2 million units in 2013, while Battlefield 4 trailed behind with around 838,869 units. Moreover, the management at EA was mum over sales figures of Battlefield 4, but on the other hand, Activision’s Call of Duty: Ghosts crossed $1 billion in sales to retailers just a day after its launch.
The nightmare was not over for Battlefield 4 as it took a huge hit in the second week of its release. According to HardwarePal, global sales of Battlefield 4 in the second week fell around 50%. While on the other hand, Activision’s Call of Duty: Ghosts was the best selling game for the whole month of November. Not only this, but the Activision Blizzard franchise was the top-selling game on both PS4 and the Xbox One after a month of sales of the new consoles.
Can EA bounce back?
All these factors greatly affected EA’s stock, which has been declining steadily for the past few months. Its stock had gained more than 60% in 2013 due to a better performance. But because of the various issues, EA won’t be able to replicate its 2013 performance. However, in spite of this gloomy picture, EA seems to have bright prospects.
The company is betting on its new games in pipeline such as The Sims 4, EA Sports UFC, FIFA World Cup, and Dragon Age: Inquisition. But the recent experience EA gave to its gamers as well as investors cannot be easily forgotten. Therefore considering these factors it will be prudent for investors to avoid EA for the moment.
Activision is better
However its rival Activision Blizzard seems to better positioned for growth. Considering Activision’s performance, the company seems to be a better investment option as it is way cheaper at 17 times earnings and also has a dividend yield of 1.10%. Although Activision’s earnings aren’t expected to grow as fast as EA in the next five years, yet its stable and solid sales of its different franchises such as Diablo and Call of Duty makes it safe call as compared to EA.