EA's Strong Quarter Overshadowed By 'Battlefield' Pushout

Electronic Arts Inc. EA turned in an unexpectedly strong second quarter with revenue and earnings beating expectations. But analysts' enthusiasm was limited by the company's unexpected decision to push the next title in its "Battlefield" franchise out a year to 2022, leaving questions about growth in 2021.

The Analysts

Morgan Stanley's Brian Nowak maintained an Equal-Weight rating and $95 price target on the stock.

Benchmark's Mike Hickey kept a Buy rating and $129 target price on EA.

Baird's Colin Sebastian lowered the price target from $114 to $108, but kept an Outperform rating on the stock.

MKM Partners' Eric Handler remained Neutral on the stock with a fair value estimate of $96.

The Theses

Several analysts said EA's better-than-expected results were overshadowed by the unexpected pushout of the "Battlefield 6" title, making 2021 what Nowak called a "gap year" in the company's product pipeline.

"We see limited upside until we get closer to major new releases," Nowak wrote in a note.

Sebastian and Hickey also said the "Battlefield" issue leaves questions about the company's 2021 growth, with Hickey saying it leaves EA "leaning heavily on live service and mobile growth through a console transition period."

Without 'Battlefield' Issue, Results Were Good

Analysts said if it weren't for the questions raised by the "Battlefield" delay, EA's report would otherwise have been strong, with acceleration in Live Services, successful new FIFA and Madden launches and ongoing strength in core franchises. Sebastian also cited higher gross margin and lower-than-expected sales and marketing expenses, while Hickey noted that near-term guidance, particularly for the third quarter of 2020, remains strong.

"We were pleased with EA's better than expected 2Q results, especially since the upside was more revenue driven than a result of lower operating costs," wrote Handler. "However, we did not hear anything which should cause EA's shares to break out of its low-$90s to high-$90s price range from which it appears stuck."

Price Action

EA shares were trading down 1% at $93.43 Wednesday.

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Photo courtesy of EA.