The Force Is Weak With Electronic Arts As 'Star Wars' Game Delayed

The good news: there’s a new vision for Electronic Arts Inc. EA’s untitled “Star Wars” game, and it’s better than the last.

The bad news: there’s a delay in play.

EA announced Wednesday that its Visceral studios, which had been working in tandem with the firm’s Vancouver studio to develop the game. Vancouver will now assume production control and remodel the game's design and style.

The shift is a setback to both the project’s release timeline and the company’s earnings.

What's The Effect?

The Star Wars game was set for a 2019 debut, but will now be delayed to an undetermined date.

“[It] doesn't sound like the title is in a good place,” Merrill Lynch analyst Justin Post said in a Wednesday note. But the Street may have already accounted for this. “While a blow to the upside case for FY19, we think some investors were anticipating at least one of EA’s three non-sports titles to slip to FY20," Post said. (See Post's track record here.)  

Morgan Stanley projects a pushback to 2021 and for sales expectations to be lowered accordingly from 8 million units to 7 million.

Merrill Lynch had only projected 4 million sales, and Post said the “title slip doesn’t materially impact the FY19 competitive outlook.”

It does force reliance on "Anthem" and "Battlefield 2" rollouts. Revenue growth driven by the release of the aforementioned games will be relative to "Battlefront" in 2018, Post said, adding that the monetization of "Battlefront 2" microtransactions, sports franchises and new mobile titles could contribute additional growth.

Inspired by a promising shift to digital and success in core franchises, Morgan Stanley reiterated an Overweight rating on EA but lowered its price target from $128 to $126 and its 2019 EPS estimates from $5.82 to $5.36.

The Bottom Line 

“We acknowledge this delay, combined with the disappointing 'Mass Effect' title from earlier this year, is likely to fuel some investors' cries around the company's lackluster track record in developing new IP and titles ... and the multiple investors will pay for this asset,” said Morgan Stanley analyst Brian Nowak. 

Merrill Lynch reiterated a Buy rating with a $131 price target, lowered its 2019 EPS estimate from $5.22 to $5.12 and cut its 2019 revenue estimate from $5.7 billion to $5.57 billion. Take Two Interactive Software Inc TTWO remains its sector favorite.

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