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And troubles there have been at Eidos. Ever since this bearish feature was written in December, a post that details the fundamental problems when investing within the computer games industry, Eidos have been having difficulties. The Foolish ill-feeling towards Eidos was the prelude to a sudden downward lurch for the company's profits and its share price, where not even the company's most famous asset, the curvaceous Lara Croft, could rescue Eidos from the turmoil within its software marketplace.
Okay, perhaps my wariness towards Eidos and computer game developers in general was very well timed. But because of the ever-advancing computer consoles and the inevitable faddish and fashionable games the platforms lead to, it's clear that this industry remains one full of short-term bursts of success rather than any long-term predictability of profits.
The real trouble for Eidos at the moment is the launch of a handful of new gaming platforms over the next eighteen months. As Charles Cornwall, the Chairman of Eidos, eloquently states today: "The hiatus in demand for games software which this transition is occasioning is expected to continue throughout our current financial year". Or in other words, all the customers are waiting for the new generation of consoles before splashing out on the software.
The slowdown in the computer games industry impacted badly on the Eidos financial performance. From the numbers reported today, annual sales dived 14% to £195m and caused the company to plunge into the red. Eidos generated an operating loss of £14m this year, compared to last year's operating profit of £43m.
Worryingly for shareholders, a lack of sales equated to a rise in operating expenses. Advertising costs jumped 22% to £25.2m due to the need "to market products more vigorously in a slowing market". Another concern is the increasing reliance on third party licensors. Royalty payments for games developed and published under license rose 19% to £18.7m. This unease is heightened by the comments made today over future releases.
The "highlights" in today' results commentary point to forthcoming games based on the film "Chicken Run", the quiz show "Who Wants To Be A Millionnaire?", Disney's (NYSE: DIS) 102 Dalmations and the Olympic Games. Alongside other "major releases" for the upcoming year being further titles based on existing Eidos games, there does appear to be a dearth of original creativity within the company.
Having created Lara Croft and milked her success to the full, it was always going to be difficult for Eidos to create some sort of blockbuster follow-up. The computer games market is unlikely to be able to sustain endless sequels of her Tomb Raider game. With the increasing dependence on gaming concepts from elsewhere, and the company continuing to "experience adverse market conditions" with "no reason to expect circumstances to improve materially before the next generation of gaming platforms are established", the short-term future at Eidos looks bleak.
And unless Eidos can come up with the "next Lara" for the new consoles, investors will continue to get more excitement from watching the antics of the busty brunette than from the Eidos share price.
Related Links
• Eidos Duelling Fools -- the Bear
• Eidos Duelling Fools -- the Bull
• Eidos discussion board
• Eidos annual results
• Eidos website