The recent move by Microsoft (MSFT) to buy Activision (ATVI) has prompted a frenzy of consideration among analysts as to who’s next in the video game company takeover market. One new projection that started life in the Financial Times suggests there is a next target after all: Electronic Arts (EA).
There certainly are reasons for such a projection to emerge. Is it a good idea? Should a large corporation step in to buy it before someone else does? And who is that “someone else” anyway? It’s a good time to be bullish on Electronic Arts, and really, video games in general.
A look at Electronic Arts’ year in share prices, however, suggests this may not be the best time for a buyout. Last February alone featured two spikes and a plunge that lasted well into March. It leveled off somewhat after that, before closing out March with a new rapid gain. A brief plateau followed, which was in turn followed by a series of sharp gains and losses as the stock bounced between the $135 and $145 range until mid-September.
That was when the next big crash hit, seeing the company go from just over $145 to just over $126 in about eight days. Recovery and a series of fluctuations followed until November 11, when the company began its biggest drop of the year from $145 to just over $120. The company mostly recovered, bringing us to the present day.
The latest surge came from rumors that Electronic Arts may be next in line for a buyout. For those skeptical that Microsoft would try another buyout so soon after the last one, you’re likely right. The current rumors suggest that everyone from Apple (AAPL) to Amazon (AMZN) to even Netflix (NFLX) could have its eye on the video game maker.
Sony’s (SONY) chances of getting in, meanwhile, seem slim. Electronic Arts has a total value of around $39 billion. That makes the purchase a bit rich for Sony’s blood, even if it could stand to have its own source of big-name exclusives.
Wall Street’s Take
Turning to Wall Street, Electronic Arts has a Strong Buy consensus rating. That’s based on 11 Buys and three Holds assigned in the past three months. The average Electronic Arts price target of $170.93 implies 22.96% upside potential.
Analyst price targets range from a low of $150 per share to a high of $200 per share.
Is Electronic Arts Next?
This round of the console wars has been somewhat difficult to parse. The fact that everyone’s so badly thrown off by pandemic-related issues doesn’t make things easier. Video game demand is on the rise as more people stay in and play video games.
The growing demand from the professional streamer community doesn’t help clarify matters either; the number of people watching other people play video games is expected to jump 10% after 2020, and the audience is expected to hit 920.3 million within the next two years. Throw in a chip shortage and rampant use of bot snipers every time a store says “We have Xbox Series X units in stock,” and the market is phenomenally destabilized.
This does place an onus on companies to be more involved in the video game market. It’s already huge and growing. The comparatively new arrival of the Metaverse, coupled with ongoing growth patterns that have been in play for years, make it imperative. So yes, companies from Apple to Amazon and beyond may want a bigger stake in an obviously growing market. Amazon’s purchase of Twitch, a leader in game streaming presentations, makes that clear.
Now, however, may not be the best time to stage a buy. That opportunity came at the end of November 2021, when EA was at a 52-week low. EA shares hadn’t been that low since November 2020. It may still work, however; EA shares have been bouncing in the $120 to $150 range since around June 2020. Usually it’s closer to the lower end of that range, too. With shares currently trading under the average—even under the lowest price targets—there’s quite a bit of upward potential here.
EA’s dividend history only makes it that much more worthy of consideration; the dividend has been reasonably stable and mostly quarterly since November 2020.
Concluding Views
There are plenty of possibilities here. Electronic Arts is one of the last major studios that hasn’t been bought out by somebody. There’s more reason than ever for deep-pocketed companies to make a play to get in on this growing market. So, yes, EA could get bought out, and fairly soon.
The stock is near its lows for the year. Further, it’s trading well under its target prices, even the low targets. It’s got a substantial portfolio of solid titles, including sports titles that make an appearance every year to eager fans.
Buying in on Electronic Arts now could mean buying in on the next big buyout target. Perhaps not right away, but eventually? That’s anybody’s game. It’s a good time to be bullish on video games, and Electronic Arts may be leading the pack right now.
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