Electronic Arts (ERTS) has had a terrible winter quarter.  They had massive layoffs, miserable sales during the holidays, and lowered guidance in January.  Their stock has been punished.  It’s almost at $16 which is very near its all-time 5-year lows which was hit previously in March 2009.  However, I tend to look at the long-term case especially the risk vs rewards.  The last time stocks reached these levels were in the year 2000.

Let’s take a look at it’s financials.  They have had annual losses for 2009 and 2009.  Could they be finally getting out of their cold?  The economy is picking up, but consumers are still not buying.  If you’re unemployed, I’d bet you’d still have $60 to buy a game.  Anyways, long-term wise their financials do not look that good.   They have negative cash flow and net losses for the year.  However their game lineup is strong this year.

Games influence the price.  If Electronic Arts can get a ‘Modern Warfare 2’ effect, they will be able to hit profits again.  You’ve also seen it with Rockstar Games with Grand Theft Auto.  They just released Mass Effect 2 last week.  It has already sold over 2 million copies.  Especially with their lower guidance it makes their stock much average to what it should be priced out.  We’re looking for the future though.  If the games are good, the stock price will move with it.

In 2009, we saw a pretty mediocre lineup: Madden NFL, Battlefield, Fight Night, Dead Space, Tiger Woods Gold, Godfather Part 2, My Sim Party, Nascar Kart Racing, Skate 2, Lord of the Rings, and Mirror’s Edge.  These games did mildly well, some did bad, but none of them were blockbusters.  Here’s what is coming out in March 2010: Command & Conquer 4 (PC), Battlefield: Bad Company 2 (PC, PS3, XBOX).  These are two very strong games.  I’d say for the short-term 6 months there’s money to be made with ERTS.

I’ll be taking a further look into ERTS in the future.  If the market continues dropping, it might be better to wait it out before buying.  The stoichastics have already hit the lows for the daily and weekly.  The RSI(2) is weak also.  There could be continued downside for this stock as the video game industry continues to drop, but the long-term perspective continues to get better.