EA Guides Low

Electronic Arts

Estimates: EPS should fall 34% to 43 cents, with revenue down 5% to $1.085 billion.

Results: Loss of 13 cents as the company stopped reporting non-GAAP earnings that adjust for deferred revenue. Revenue of $898 million and adjusted revenue of $1.1 billion.

Outlook: Q3 revenue of $1.125 billion and adjusted revenue of $2.04 billion, vs. consensus for $2.08 billion. Q3 loss of 17 cents.

Stock: Shares (88 CR) rose 0.85% late after closing down 0.9% to 77.84. The stock dived below a buy point last week amid concerns that new game “Titanfall 2” won’t sell as well as hoped.

Electronic Arts’ earnings and outlook will give investors a heads-up on video game demand for the key holiday season, ahead of quarterly reports this week from rivals Activision Blizzard(ATVI) and Take-Two Entertainment (TTWO).

EA stock initially fell in after-hours trading as investors worried about light holiday sales guidance. But shares then rallied, rising more 5.86% in extended trading. During the regular session Tuesday, EA stock dropped 0.9% to 77.84.  Could be a trading opportunity to add to put and short positions tomorrow morning.

A short or put idea is in the console vs. smartphone gaming business.  The largest player is Electronic Arts (NASDAQ: EA).

Even with an installed base of 101 million Wii units, 80 million PlayStation 3 systems, 80 million Xbox 360 consoles, 13 million PlayStation 4 machines, 7 million Xbox One units, and 7 million Wii U systems, the console business can’t compete with the sheer billions of smartphone and tablet users around the world.

“Practically everyone in mature markets now has a smartphone and the majority has access to a tablet,” van Deelen says. “In emerging markets, the smartphone is often their first device that is connected to the Internet. With an installed base of billions, the audience is enormous on a global scale. A console is not a must-have device like smartphones, and in a growing number of cases, tablets are. Mobile devices, which aren’t purchased to play games on, introduce new consumers to games.”

The overall question now seems to be not if Microsoft will exit the game business, but when and how.

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