'Escaping The Penalty Box': Wall Street Reacts To EA's 'Battlefield' Delay

Electronic Arts Inc. EA announced a delay Thursday in the highly anticipated release of "Battlefield V" and lowered its guidance.

The Analysts

• UBS analyst Eric Sheridan reiterated a Buy rating on Electronic Arts and lowered the price target from $176 to $166.
• BMO Capital Markets analyst Gerrick Johnson maintained an Outperform rating and lowered the price target from $162 to $140.
• Wedbush analyst Michael Pachter maintained an Outperform rating and a price target of $158.
• Macquarie analyst Benjamin Schachter maintained an Outperform rating and lowered the price target from $158 to $138.

The Theses

UBS' Sheridan outlined both short-term and long-term projections for the video game maker in a Friday note. 

On a short-term basis, Sheridan emphasized the importance of EA “escaping the penalty box.”

After the downward guidance revision, "investors will logically raise issues with "BF V" performance in a crowded slate (and what it means for development of non-sports titles), mobile headwinds (titles and competition) and F/X, as there have been recent mixed messages," the analyst said. 

The short- and medium-term investor focus will be on concerns over the performance of sports titles such as "FIFA 19," he said. 

In the long run, the video game industry is moving toward a games-as-a-service business model, Sheridan said. 

This model supports sustainable revenue growth, continued margin expansion and  stable, predictable free cash flow generation, the analyst said. 

BMO's Johnson referenced a blog post by DICE General Manager Oskar Gabrielson that attributed the "Battlefield V" delay to tweaks in gameplay tempo, soldier visibility and the inclusion of battle royale mode.  

"Management would not confirm nor deny that it was taking down its overall expectations for 'Battlefield V,' since it never gave public guidance on the game's anticipated performance," Johnson said. "However, given what appears to be poor pre-orders, we think there was concern about the game's performance, especially given the competitive holiday release."

Wedbush's Pachter said EA was smart to delay the release due to the possibility of higher sales on the back of better performance.

“While ceding some sales to 'Call of Duty: Black Ops 4,' 'Battlefield V' review scores should benefit from roughly four extra weeks of development time. We estimate that [fiscal 2019] guidance now contemplates roughly 11 million units, down from 13 million units previously, with Q3 and Q4 sales of 8 million units and 3 million units, respectively,” the analyst said. 

The implied Q3 number appears "conservative," as "Star Wars: Battlefront II" sold more than 7 million units in its launch quarter despite a negative reaction from gamers and reviewers, Pachter said. 

Macquarie's Schachter said EA is seeking the right acquisition to grow its mobile business — a challenging goal. 

The "Battlefield" delay also threatens to create a track record of poor holiday sales, the analyst said. 

“If after the revised release date the game is still weak, this will be the second year in a row of poor sales from a big holiday title from EA and DICE, a marked turnaround from the development studio’s prior track record." 

Price Action

EA shares were down 2.38 percent at $113.18 at the time of publication Friday. 

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Photo courtesy of EA.