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Electronic Arts (EA -18%) paints a grim picture of Q3 (Dec) and FY25 (Mar) net bookings growth, triggering a wave of selling pressure as shares fall to September 2023 lows today. The video game publisher, known for its portfolio of sports titles, like Madden and EA Sports FC (formerly known as FIFA), as well as several other popular franchises like Dragon Age and Battlefield, slashed its Q3 and FY25 net bookings forecast after the close yesterday.

The company now expects Q3 bookings of approximately $2.215 bln, down from its previous outlook of $2.40-2.55 bln, the midpoint already falling short of consensus when first issued in October. EA also predicts FY25 bookings of around $7.00-7.15 bln, a $575 mln reduction from the midpoint of its prior $7.50-7.80 bln target.

• What happened? EA Sports FC 25 underperformed the company's internal expectations, pulling down its forecasts tremendously. It is important to note that FC is the largest video game franchise in the Western Hemisphere, making it crucial for the title to consistently outperform. Global Football, which comprises the EA Sports FC titles, experienced a rapid slowdown following upward momentum to enter Q3. At the same time, Dragon Age saw only around 1.5 mln players during Q3, nearly half what EA expected.
• Making the downbeat guidance so surprising was that during its Q2 (Sep) earnings call in October, EA conveyed an upbeat tone surrounding EA Sports FC and Dragon Age. In the latter, management was excited over the upcoming launch of Dragon Age: The Veilguard, its first update in 10 years. Unfortunately for EA, despite positive critical reviews, gamers are not overly fond of the new release.
• Additionally, in October, EA noted that momentum continued in Global Football, placing the company on track to grow net bookings in FY25 despite lapping a record year. However, after its updated FY25 net bookings guidance, EA is anticipating a 4.8% contraction yr/yr at the midpoint.
• EA remains confident in its long-term framework, anticipating a return to growth in FY26. However, this places substantial weight on the next two fiscal years. Recall in October, EA reiterated its confidence in its long-term goals, projecting material margin expansion through FY27 on industry outperformance regarding net bookings growth.

With spending on video game-related products, including hardware and software, continuing to slide, falling 8.9% yr/yr in December following a 7.0% decline in November, EA's headwinds may not dissipate very quickly. Its popular franchises are clearly losing appeal as the updated titles, such as EA Sports FC 25, grow increasingly stale as visual updates and gameplay mechanics become undifferentiated from the previous year's release.

While there is still plenty to like from EA, including its newly released College Football title -- the best-selling sports game ever in the U.S. -- and exclusivity with the NFL, the company's reduced guidance creates unease surrounding its long-term goals. Without a clear game plan to reengage lost users, EA could struggle to mount a quick turnaround.