Looks like “The Force” was certainly with Electronic Arts (Nasdaq: EA) yesterday – at least for a short time.
The company reported stronger-than-expected results. Earnings per share came in at $0.17 on revenue of $977 million, compared to the consensus estimate of $0.16 earnings per share and $960 million in sales.
The positive sales are largely due to its growing digital content sales, from games like “Star Wars: The Old Republic.” Digital sales almost doubled over the same quarter a year ago, from $211 million to $419 million.
The earnings beat wasn’t enough to keep investors on board, however, and EA shares dipped 5% overnight. The stock’s continued its downward slope today.
Part of the reason for the selloff is that the company forecast a loss of up to $0.45 per share in the fiscal first quarter, which misses the analysts’ estimate of a $0.33 loss, according to Bloomberg.
Here’s another reason investors are tuning out, and what EA needs to do to ensure it doesn’t happen again…
Subscribers Losing Interest
Although the December debut of its online game, “Star Wars: The Old Republic” is considered the most successful subscription massive multiplayer online (MMO) game launch in history, its subscriber count is falling off a cliff.
At the end of the company’s third quarter, it reported that 1.7 million active subscribers were signed up. Now that number has fallen 24% to 1.3 million.
Why the drop? The company claims that “a substantial portion of the decrease [is] due to casual and trial players cycling out of the subscriber base, driving up the overall percentage of paying subscribers.”
I’m not sure I buy that. Sure, any game is bound to have its fair share of short-term players who just want to kick the tires for a few weeks. But 24% is a huge hit. Especially considering such a wildly popular game should have been adding enough new subscribers to make up for those heading for the exit.
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Here’s my take on why gamers really aren’t staying on board…
We Can Only Take So Many Defects
As a “Star Wars” player myself, it’s clear to me that EA rushed the launch of this title. For a while, it seemed like there was a new glitch to deal with every week.
Like getting stuck in walls, characters’ eyes changing to silver during conversations, or entire characters becoming shadows. And then there’s my personal favorite, companions falling on the ground randomly, appearing to play dead for 10 seconds and then standing back up.
Granted, EA developers have been busy fixing the defects, and there’s a new patch to download each week to prove it. Not to mention the company’s coming up with a few ways to keep users engaged, like giving out “Founder” badges to some of the first subscribers and a free pet that aimlessly follows your character around. Not exactly useful, but I’m sure it convinced some people to stick around.
But fixing the defects now doesn’t change the fact that the launch was far from perfect.
Yes, it’s just one game launch. And the company tried to ensure subscribers that any long-term subscriber slump shouldn’t have a huge effect on the company: “While this franchise is very profitable, it only represents a mid-single digit percent of our total profitability in fiscal 13.”
The problem is that the company’s CFO, Ken Barker, revealed that EA expects digital game sales like “Star Wars” to account for 40% of its overall revenue in fiscal 2013. Meaning there will be several new ways for the company to screw up again in the future.
And if its developers continue to stumble out of the gate with any upcoming game releases, the ensuing fallout from subscribers and investors alike will only get worse. With or without a free pet.