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Is the Market ready to buy bad news?


"You want to talk about the Fed?"


Collin's Electronic Arts Preview:

Electronic Arts (ERTS) reports tonight after the bell. Company is expected to report Q4 EPS of $0.09 on revs of $549.3 million, next quarter, ERTS is looking for $0.05 EPS on revs of $452.72 million and for the FY '05, looking for $1.71 EPS on $3.12 billion in revs. For FY'06, looking for $1.73 EPS on REVS of $3.39 billion

Conference Call: Scheduled for 5:00 PM ET. 1.888.578.6632

Previous Company Guidance from March 21, 2005:
Co now expects FY05 net rev to be $3.100-$3.125 bln, vs previous guidance of $3.275-$3.325 bln. Co expects non-GAAP EPS of $1.70-$1.72, vs previous guidance of $1.90-$1.95. Co expects GAAP EPS of $1.62-$1.64, vs previous guidance of $1.82-$1.87. "These results are clearly disappointing... While our new releases are performing reasonably well, they have not been able to offset a significant falloff in catalog sales."


Here's what we know about the entertainment software stocks:

  • Sony (SNE)'s PSP business isn't going to save the companies from the pain of the coming console transition.
  • As a result, estimates have come down and seem likely to come down further, as Sony ships the PSP one at a time into the US market.
  • The software stocks have gotten pounded, smacked, battered, thumped, taken to the wood shed and generally abused. Erts hit $71.16 on March 9th. The stock is $53.25 going into the number tonight.
  • Expectations are now "Much lower".

This feels like a big call for Electronic Arts. The company burned a lot of analysts (presumably non-Minyans) when they cut numbers last time. The company set the bar low for tonight's call with the warning (see above text). The stock is off the lows and "feels" like its at a big juncture.

I think the market's reaction to what I expect to be bad news from Electronic Arts will be a big tell for the near term. The stock is down large, the bad news is known, expectations are low... if they can actually disappoint again and go lower it bodes poorly, from where I'm sittin.

Off to the Closing Bell!

["Oh so prettyyyyyyyy..."]

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No positions in stocks mentioned.

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