EA takeover: Electronic Arts stock price buoyant despite Disney, Apple acquisition denial
15:08, 22 August 2022
With million-dollar video game franchises on its books and potential suitors circling amid industry consolidation, can Electronic Arts (EA) remain as a standalone games company?
EA stock has been trading up 0.2% over the past week. For the year to date, is down 3%.
Electronic Arts (EA) stock price
Founded in 1982 and headquartered in Redwood City, California, Electronic Arts (EA) develops, publishes and distributes videogames for console, PC, mobile and online platforms.
EA’s prize videogame franchises include free-to-play online shooter Apex Legends and annual football title FIFA, which will be rebranded after the end of a lucrative licensing deal with the sport’s governing body.
“Longer-term, EA can outpace the video game industry by continuing to build upon its evergreen franchises and grow digital sales across all platforms, especially mobile which remains a key area of growth,” Wedbush Securities analyst Michael Pachter wrote in a recent research note.
What is your sentiment on EA?
Deals and takeovers
A batch of billion-dollar gaming deals have already taken place this year:
- Microsoft (MSFT) agreed to buy Activision Blizzard in 2022 for $69bn — the most expensive deal in gaming
- Take-Two (TTWO) Interactive acquired Zynga for $12.7bn
- Sony (SNE) acquired Bungie for $3.6bn
On an earnings call earlier this month, EA’s Wilson did not comment on takeover speculation but did underline the company’s standalone status.
“I would tell you, I think we are in an incredible position. We’re soon to be the largest stand-alone independent developer and publisher of interactive entertainment in the world.”
“In a world where gaming is becoming more important to the lives of Gen Z and Gen Alpha – who will be the leading generation in terms of consumption, entertainment for the future – I don't think we could be in a stronger position as a stand-alone company,” EA’s CEO said.
The financial press has been awash with rumours that a company such as Apple (AAPL), Disney (DIS) or Amazon (AMZN) might swoop in for EA. But with a market capitalization of almost $40bn, any deal for EA is going to be pricey.
Amazon (AMZN) stock price
Amazon already has an in-house games studio which released online multiplayer PC games such as New World and Lost Ark in the past year. Although not mainstream titles, a company as cash-rich as Amazon (which makes most of its revenue from its AWS cloud service) could beef up its rosters of titles with a potential acquisition of EA.
Would EA be a good fit for a company like Disney? Disney already has many different intellectual properties on its books such as Marvel Entertainment and the Star Wars franchise.
But Disney is committed to creating content on its Disney+ streaming service and is still carrying debt from its 2019 acquisition of Fox. A pivot into gaming could be media overreach for the company even though EA was the prior exclusive licence holder for Star Wars videogames.
Apple, with its focus on consumer electronics and streaming media, might not be a natural fit for a major games company. There are rumours that the Cupertino, California-headquartered company is moving into the electric vehicle space, with Bloomberg News recently reporting that it hired a key Lamborghini executive.
An outsider could come in the form of NBCUniversal, the media and entertainment subsidiary of US cable giant Comcast (CMCSA).
Comcast (CMCSA) stock price
Comcast is the biggest broadcasting and cable TV company in the world by revenue and the largest home internet service provider in the United States.
In the spring, one media outlet reported that NBCUniversal had failed to reach a deal to buy EA and add it to its media portfolio, which includes Universal Studios.
Recent earnings
Earlier this month, EA reported net income of $1.11 per share on revenue of $1.77bn (£1.5bn, €1.8bn) with analysts expecting earnings of 89 cents on revenue of $1.26bn.
Bookings – revenue from in-game transactions – were up 22% to reach $7.478bn over the trailing 12 months.
“Despite the better-than-expected results, we believe that Battlefield 2042 remains a drag on top-line growth, an issue that we expect to persist through the year...Battlefield was not discussed at all, despite its status as the one of the firm’s premier franchises,” Morningstar analyst Neil Macker commented in a recent note.
Online first-person shooter Battlefield 2042 was launched late last year to reports of bugs, glitches and other player issues, sending EA stock down over 7% at the time.
The Battlefield franchise is 20 years old and was coded by Swedish game developer DICE.
"EA expects the [2022] mix to be more console/PC and less mobile which should help gross margins, but reiterated confidence in the guide. If no content slips we remain bullish for growth on the top and bottom line for the year," Jefferies analyst Andrew Uerkwitz wrote.
“We now expect total bookings growth of 7.7% year-on-year. We expect momentum in live services to help offset some of the pressure on margins from new mobile launches and increased developer headcount for upcoming titles,” UBS analyst John Hodulik wrote in a recent note.
Investors will get an update on the company when EA reports fiscal second-quarter earnings in November.
Markets in this article
Related topics