Analysts see the positive in Andrew Wilson’s first holiday season as EA chief

Video game giant Electronic Arts reported mixed holiday quarter results Tuesday, hitting its earnings targets but missing on revenues as its first Xbox One and PlayStation 4 console game sales materialized.

But analysts are looking on the bright side today, and EA’s stock price is up 2.6 percent in midday trading on Wall Street — and that the publisher is positioned well for 2014 in the multibillion game industry. EA chief executive Andrew Wilson said sales of games for Microsoft’s and Sony’s new systems games were better than expected, but these were not enough to make up for weaker sales for the older Xbox 360 and PlayStation 3 consoles.

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EA’s shares were upgraded to “buy” ratings by analysts at Bank of America/Merrill.

Ben Schachter, an analyst at Macquarie Equities Research, reiterated his “outperform” rating on the stock price (meaning it will do better than the overall stock market) and wrote, “While the top line was impacted by weaker than expected current-gen software sales, EA, through expense management, hit [earnings per share] estimates. With so much uncertainty around the holiday, EA’s results were about as good as could be expected.

“We would have preferred to see better performance from current-gen and Plants vs. Zombies, but the company has clearly shifted from the previous management’s grow revenue at-all-costs strategy to a focus on margins and EPS growth. With tighter expense controls and a focus on fewer high-potential brands, we like EA’s positioning.”

Adam Krejcik, an analyst at Eilers Research, wrote, “While current-generation weakness is a concern, we are willing to look past this due to much stronger than expected next-gen sales … and continued [profit] margin improvement.”

He said the shares are cheap now, with EA’s market value at $7.8 billion. EA drove its operating costs down to $540 million, well below Krejcik’s estimate of $604 million for the quarter, and sales and marketing costs were $207 million, a three-year low for EA during a holiday season.

Wilson said yesterday that he expects Microsoft and Sony will exceed the 10 million units of next-generation consoles that he had predicted they would sell by March 31.

Michael Pachter, an analyst at Wedbush Securities, wrote that he was decreasing his estimate for fiscal year 2014 (ended March 31) to $3.91 billion in accordance with EA’s lower guidance, but he was also increasing his estimate for earnings because of the better cost controls.

“We believe EA has the lineup to deliver revenue and [profit] growth for at least the next two years,” he said.

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With franchises like UFC, FIFA, Battlefield, Mirror’s Edge, Star Wars, and Titanfall, EA will likely be able to grow its revenues by $400 million a year, Pachter said. He was encouraged that Wilson said that the NFL license for Madden NFL football has been extended for at least another two years. He is keeping EA’s stock rating at “outperform.”

Arvind Bhatia, an analyst at the firm Sterne Agee, wrote that digital gaming trends were strong, with digital revenue at EA up 27 percent from a year ago to $517 million in the quarter. That includes revenue from online games, subscriptions, mobile games, and downloadable content. He has a “buy” rating on the stock.