Will Riccitiello Survive EA Slump? We Ask Pachter


On Tuesday afternoon, Electronic Arts CEO John Riccitiello (left) announced that the publisher would not meet its revenue projections for the 2009 fiscal year.

Personnel cuts and cancellation of some underperforming projects will follow.

Yesterday, Wedbush-Morgan analyst Michael Pachter took EA to task in a note to investors:

After market close on Tuesday, EA significantly lowered its guidance due to weaker than expected sales…  Management stated that it will not be able to achieve its previously issued FY:09 guidance…

 

With the stock hovering near a seven-year low, management continued its recent history of disappointment. We are no longer confident that EA is taking the steps necessary to achieve its FY:11 goals of $6 billion in revenue and $1.5 billion in operating profit. 

Ouch! Pretty strong stuff from Pachter, so we asked him point-blank: Is John Riccitiello’s job in jeopardy? After all, in addition to missing his projected numbers, Riccitiello also led EA through a protracted – some would say, embarrassing – and ultimately failed attempt to acquire Grand Theft Auto publisher Take-Two Interactive this year. Here’s what Pachter told us:

Does Riccitiello survive is a function of a lot of things… He’s probably not in trouble yet. He’s probably in trouble in eight months or a year if this new strategy shows no traction…

 

You really just have to be prudent in your spending. Don’t spend ahead of revenues. So don’t spend $500 million chasing casual online games until you have $500 million in profit from them.  So you just scale that stuff back, a hundred million here and a hundred million there and you’re talking real money [saved].

 

[EA is] being punished by trying to do too much at once. They’re too ambitious. They’re launching way too many games at once, so it’s crazy to believe they’re all going to work. And it’s too early to give up on any of them. And then they launched in kind a holiday window that’s really tough.

 

I think everything’s performing fine. It’s not like Mirrors Edge is selling zero units; it’s selling two million. And Dead Space is selling two million or three million. It’s crazy that these guys would think that they couldn’t maybe make these games again. Mirror’s Edge is more of a victim of just coming out in the midst of Far Cry, Gears, Fallout. How could you expect that game to fly? It got lost. I don’t think its an indictment of what they were doing

What about Riccitiello’s comments to the effect that EA needs to revise its Wii strategy? Hit the jump for the rest of Pachter’s thoughts on EA.

 

What [EA] really needed to do… was take their core products and get them on the Wii. So get the Wii audience to want to buy Burnout and Tiger Woods instead of coming up with a whole new division to make MySims and Boom Blox and Boogie.

 

Even though by contract they have to say Boom Blox is great, it didn’t sell that great. And Boogie didn’t sell at all and Facebreakers didn’t sell at all. Those games are victims. Take what you’re good at and convince the Wii audience they need to buy it. Clearly, the Wii audience is willing to buy games. They just need to be sold on why they should buy these games.

 

I think EA is going to figure this one out, and you know what? They weren’t the only ones who screwed [the Wii] up. But that’s not why they’re blowing up now. They’re blowing up now because they’re more spending money than they should be chasing revenue that hasn’t yet materialized.

 

I’m talking about Pogo Online in China, I’m talking about mid-session (micro-transaction) games. Im talking about MMOs. That’s the problem I’m having with these guys.

 

[Riccitiello] even bragged about how EA Mobile is earning $150 million in revenue. My guess is, it’s losing money… How’s he bragging about that? Shut it down.

 

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