Electronic Arts Selling Off After Reporting Earnings, Should You Be Buying? (ERTS)

Shares of video game developer Electronic Arts ERTS have lost 4.95% today to $17.87. Yesterday after the closing bell, the company reported EPS of $0.07 compared to analysts estimates of $0.05. In the year ago quarter, ERTS reported a loss of $0.37 per share. Revenues were up 39.6% year over year. On the surface this looks like a strong report from a company that has been struggling from an operational perspective. Electronic Arts (ERTS) reaffirmed its guidance for the upcoming quarter and its non-GAAP estimates for fiscal year 2011. The company, however, lowered their GAAP guidance for fiscal 2011, as a result of revisions to its release schedule. It appears that this development is triggering the sell off in the stock. Electronic Arts has admittedly had some significant operational difficulties for some time now. Both net income and margins fell precipitously between 2005 and 2009, while revenues have been showing strong growth. It would appear, however, that margins and earnings may have hit a trough in Q3 of 2009, and the company is back on its way to being consistently profitable. For fiscal 2011, analysts are estimating that ERTS will earn $0.64 and $0.86 in fiscal 2012. Electronic Arts has a very strong stable of intellectual property and a devoted consumer base. Furthermore, ERTS is making a strong push into developing games for the red-hot mobile device market, including the iPad. The stock traded above $60 as recently as 2007, so if management can right the ship, ERTS could be a steal at current levels.