By Michael Elkins
Bank of America downgraded Electronic Arts (NASDAQ:EA) to a Neutral (From Buy) rating and cut the price target to $130.00 (From $155.00) following the video game company's 3Q miss.
EA reported 3Q net bookings of $2.34Bn (-5% Y/Y CC), below Street's estimate at $2.49Bn, with both Full Game and PC/Console Live Services well below the Street. Weakness in small titles and new launches (NHL 23, Need For Speed) drove downside to the Street's Full Game estimates, while longtime franchises FIFA and Madden held up well. Management called out strength in the FIFA franchise, with YTD total bookings +15% Y/Y CC. FIFA ’23 units were +50% Y/Y in North America.
Bank of America revised FY23/FY24 net bookings and EPS forecasts in line with guidance. We think that the revised FY23 bookings guide includes an FX tailwind of ~$80Mn in FQ4, implying that ~8mn of Star Wars units were originally guided for the last two weeks of March. Apex Legends, which will likely decline in FQ4, was not guided down Y/Y for FY23.
BofA analysts wrote in a note, "We think EA should trade at a premium to PC/Console game publisher peers in light of its ownership of two of only 10 "mega" franchises in the world. EA currently trades slightly below our index of 10 PC/Console game publishers on a P/E basis."
They continued, "Downside risks to EA are loss of key personnel, deterioration of gamer budgets in a return-to-work environment, rising personnel costs that are not offset by price increases, and production delays driven by return to office by employees."
Shares of EA are down 11.69% in mid-day trading on Wednesday.