Electronic Arts EA 5.56% will survive its Battlefield wound just fine. Thriving in the videogame industry’s consolidation war might be a little trickier, as the soon-to-be largest independent publisher seems likely to remain a solo player.
In its fiscal third-quarter results late Tuesday, EA confirmed that “Battlefield 2042”—the latest installment of its popular shooter franchise—had a disappointing launch during the period. The result was total bookings for the quarter coming in at roughly $2.58 billion—3% below Wall Street’s expectations. The company is planning fixes and updates to the game, but said it would push out the first season of live services for the title to summer to enact those changes first. EA thus cut about $100 million from its bookings forecast for the full fiscal year ending in March.
Luckily, Battlefield is no Call of Duty. The blockbuster shooter from rival Activision Blizzard ATVI 0.24% is on an annual release cycle and typically sells more than 20 million units a year. Analysts were expecting more like 10 million to 12 million units for the latest Battlefield, from a franchise in which a major release takes place every two to three years. Hence, the resulting forecast cut amounted to a 1.3% trim. Much of Battlefield’s weakness will likely be compensated for by strong performance of EA’s sports titles as well as the popular online shooter game “Apex Legends,” which Wall Street expects to generate more than $1 billion in revenue this fiscal year for EA, according to consensus estimates by Visible Alpha.
The bigger question surrounding EA is how the company will fare in the consolidation wave sweeping the game sector. Last month, three major deal announcements occurred: Take-Two Interactive TTWO 3.00% bidding $11 billion to buy Zynga ZNGA 0.22% ; Sony’s SONY -0.28% $3 billion pickup of Bungie; and Microsoft’s MSFT 1.52% $69 billion proposal to buy Activision. The latter is most relevant for EA, because it would leave the company as the largest pure-play game publisher by annual revenue. It would also leave the company seemingly disadvantaged in a world in which major platform owners see game content as a crucial draw. Hence, the deal wave has set off speculation on who might go after EA.
Few really could. With a current market value around $38 billion, an offer for EA would need to be in the $60 billion range to reflect a 55% premium—the midpoint between the premiums offered for Zynga and Activision. That severely limits the field mostly to cash-rich, big tech platforms such as Amazon, AMZN -0.38% Google, Apple AAPL 0.70% and Facebook FB 1.25% parent Meta—all of whom have powerful reasons to stay out of regulators’ sights.
Some have speculated on Netflix, NFLX -6.05% which is now dabbling in games and—thanks to a poorly received fourth-quarter report—might feel a need to change its story. But Netflix has never done a sizable deal; six acquisitions listed by FactSet don’t even have transaction values attached. And the streaming giant is barely tipping back into being free-cash-flow positive, after spending years burning cash to build up its own content slate.
Also, any bidder with the scale and resources to make a play for EA will likely want to see how the Microsoft-Activision deal plays out with regulators. That deal will be reviewed by the Federal Trade Commission, which has promised a tougher look at major tech transactions. That could stall any move for EA by months at least. But the company is doing just fine; its wide lineup of sports, action and mobile games diversifies its exposure, while properties such as “FIFA,” “Madden NFL” and “Apex” provide the hits to keep players coming back. Clay Griffin of MoffettNathanson wrote Wednesday that EA “may have to execute its strategy as a party of one.” There are worse things.
Write to Dan Gallagher at dan.gallagher@wsj.com
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