Electronic Arts (NASDAQ:EA) surges after a takeover

0

Shares of video game titan Electronic Arts (EA) are up in today’s trading session. The big news of the day featured a possible takeover in the works, but with the doubt emerging, earnings pulled back. The news emerged earlier today that Amazon (AMZN) was about to do a play for Electronic Arts. With such a decision, Amazon would have joined in the buying action previously seen at Microsoft (MSFT) and, to a lesser extent, at Sony (SONY).

Despite this, word quickly followed that Amazon was not considering buying Electronic Arts after all.

The past 12 months for Electronic Arts stocks have been uneven to say the least. Peaks are followed by dips with alarming rapidity, and it rarely takes long for the next peak to appear. Still, the trading range is quite narrow; last year around this time, EA shares cost around $143 each.

Late September saw this drop to around $126. In early October, prices recovered again to around $143. The pattern of rapid highs and lows has continued to date, where EA is trading around $133.

Electronic Arts is a household name in the video game industry. If Amazon really has ambitions in the video game sector, then taking over EA would absolutely be a way to impose itself there.

While this rumor may or may not come to fruition, EA still has a lot of value. I’m a bit concerned about his overall trajectory. However, I’m still willing to be bullish on one of the biggest names in gaming.

Investor Sentiment on EA Stock Calls for Cautious Optimism

Analysts seem cautiously optimistic about Electronic Arts’ chances. Investor sentiment, meanwhile, seems to reflect this assessment well. Currently, Electronic Arts has a smart score of 9 out of 10 on TipRanks. This is the second highest level of “outperformance” and the second highest score. This suggests that Electronic Arts has an excellent chance of outperforming the overall market.

Still, the optimism is far more cautious among EA insiders. Insider trading at Electronic Arts is fairly heavily weighted by sales, especially recently. Insiders have sold a combined $6.6 million worth of stock in the past three months alone. A total of 12 buy transactions were recorded against 18 sell transactions. Multiple informative buys and sells have taken place in the past month alone.

Going back to last year, meanwhile, shows a fairly clear sell weighting. The past 12 months have seen 73 sell trades versus 43 buy trades. Interestingly, EA insiders had a strange tendency to buy almost every three months.

There was a sharp increase in purchases in October 2021, then no purchases at all until January. Then, once again, there was no buying until April. Only the latest period broke the trend, with two buying in June before another push in July.

Amazon has big video game ambitions

While it seems reports of Amazon buying EA were premature at best, the notion is still something to consider. Such a decision could have been very important for Amazon, but it might have taken a while to take off properly. Amazon has made little mystery about its video game ambitions. Amazon’s purchase of Twitch in 2014 made this point pretty clear.

Now that Twitch is mentioned in virtually the same breath as YouTube when it comes to game streaming, the value of this purchase becomes clear.

EA has a lot of attractive properties that would generate interest. Amazon even already has a connection with EA; a look at Amazon’s Gaming Prime section immediately presents a major EA property: FIFA 22.

Amazon’s own development processes haven’t really struck much gold. Games like “Lost Ark” and “New World” are not really known. They have their supporters, however.

So by buying EA, Amazon would have had an array of developers at its disposal and a fair amount of intellectual property to work with. There’s only one problem with this, however; EA’s development cycles lately haven’t brought much work either.

In May, IGN took a look at all the games EA had in development. It was close to the beginning of summer. What did EA have in development at the time? The answer is, unfortunately, not much. Two racing games were on the program, “Grid Legends” and a new entrant “Need for Speed”. There was a “Dead Space” remake, three more “Star Wars” games, and new episodes of “Dragon Age” and “Mass Effect,” among others.

The reaction to such a slate was lukewarm at best. Some found excitement with certain items on the list. Others much less. One title, dubbed “RustHeart”, caught some interested looks as it was a new piece of IP.

The good news, then, is that if Amazon had actually made the purchase, it would have had access to the full EA catalog. That’s not a small number of games and properties to work with. The bad news is that it would have had access to EA’s full back catalog, which EA itself does surprisingly little other than churning out sequel after sequel.

EA didn’t even hold an EA Live event in June to match the E3 event that never happened this year. This suggests that the company doesn’t have much to show for and may not have much in store before video game prime time: the holiday shopping season. EA is still planning “a few surprises”, however, this may be where we get the bulk of the release information for the rest of 2022.

Many releases originally planned for 2022 have been delayed to 2023 for various reasons. Everything from supply chain issues to COVID-19 lockdowns have stepped in to slow the pace of releases. However, that also means the rest of the year looks pretty barren and won’t help much when the next earnings season comes out for EA.

Is EA Stock a Buy or Sell?

On Wall Street, Electronic Arts has a moderate buy consensus rating. This is based on nine buys and five blocks attributed over the past three months. The EA average price target of $151.07 implies an upside potential of 13.4%. Analyst price targets range from a low of $130 per share to a high of $170 per share.

Conclusion: Investors should be cautiously optimistic about EA stocks

I’m cautiously bullish on EA stocks. No one can take away the fact that EA is still one of the biggest names in game publishing. It has a huge amount of intellectual properties on its side. It has a huge stable of developers. Even better, it even has a series of projects in development. While the deal with Amazon may have really kicked things off by giving EA another hefty amount of development money, EA is still worth considering on its own.

Add to that the fact that EA is trading close to its lowest price targets, and it only gives further encouragement. Granted, EA doesn’t have many releases right now. Many of its biggest titles likely won’t see the light of day until 2023, like many other releases slated for release in 2022. That won’t help in the near term.

However, once builds start releasing again, likely in a few months, EA may well see a resurgence. Getting in ahead of this potential resurgence could be a smart game.

Disclosure

Share.

Comments are closed.