Needham & Company: ‘Riccitiello’s departure [from EA] underscores difficult transition to new platforms’

Transitioning from current to next-gen consoles will prove more difficult than many of us thought. In recent months, many studios have been shut down as publishers attempt to tighten up their business model heading into the next generation of gaming. The latest casualty was Electronic Arts' John Riccitiello who, just yesterday, stepped down as CEO of the company. In his farewell letter, detailing why he left the company, he confirmed EA will fall short of the internal operating plan set last year and will come in at "the low end" of the financial guidance issued to the Street. The information has caused Needham & Company, a nationally recognized investment banking and asset management firm, to downgrade EA from Buy to Hold.

"We believe Mr. Riccitiello's departure comes after a series of setbacks and underscores the industry’s difficult transition to new platforms, business models and genres," analyst Sean McGowan said.

"EA shares may actually trade up on the news, at least initially, on speculation that Mr. Riccitiello's departure could bring some "freshness" to the executive suite. However, with EA trading within 10% of our previously held $20 price target, we are lowering our rating to Hold, as we believe the move and the sales warning could be a sign of tougher challenges ahead."

I'm not sure how much freshness you should expect, at least in short term. The man brought in to "ensure a smooth transition and to lead EA's executive team while the Board conducts a search for a permanent CEO" is none other than Larry Probst, who previously served as the company's CEO from 1991 to 2007. While Probst successfully grew EA's annual revenues during his time as CEO, I'm not so sure he's the man to turn around EA's current business practices.