Citing the "surprise start" to Apex Legends' new Battle Royale game, Bank of America Merrill Lynch analyst Justin Post upgraded Electronic Arts (EA) to Buy. Post also added that positive user and press previews suggest the game has staying power. Not as bullish, Buckingham analyst Matthew Harrigan downgraded the stock to Neutral on valuation after EA's market cap expanded by $4.1B just on Friday as it achieved its best one-day advance in two years. While gamers strongly welcomed an "appealing alternative to Fortnite," Harrigan believes it is premature to assume that Apex Legends achieves economics remotely akin to those for Fortnite.
BUCKINGHAM MOVING TO THE SIDELINES: In a research note to investors on Monday, Buckingham's Harrigan downgraded Electronic Arts to Neutral from Buy, while raising his price target to $103 from $90. The analyst acknowledged that he is "very encouraged" by Titanfall Universe free to play game Apex Legends reaching 10M players in just ten days. However, EA's market cap expanded by $4.1B just on Friday as it achieved its best one-day advance in two years with Electronic Arts now up 30% off its 12-month low, he contended. Harrigan noted that gamers strongly welcomed an "appealing alternative to Fortnite" and he is confident that the game is a significant success for EA owned developer Respawn. However, Harrigan believes it is premature to assume that Apex Legends achieves economics, including for in-game microtransactions like player "skins," remotely akin to those for Fortnite. Much of Fortnite's success has been through the whimsical "skins" that gamers acquire that can be viewed from a third-party view in the game, but Apex Legends is a first-person shooter where the skins are only intermittently visible on the screen, he argued.
BOFA/MERRILL SAYS BUY EA: More bullish on the stock, Bank of America Merrill Lynch's Post upgraded Electronic Arts to Buy from Neutral, with a $110 price target, citing the "surprise start" to Apex Legends' new Battle Royale. The analyst noted that the company has put a lot of resources into marketing the game, including paying streamers, but positive user and press reviews so far suggest the game may have staying power. While Post acknowledged that any call on Apex at this early stage is highly speculative, he believes EA now has a title to capitalize on the most important new genre in gaming, and FY20 estimates seem de-risked. The analyst expects new data points to drive big swings in the stock as investors evaluate the Apex potential.
'HOTTEST NEW GAME': While reiterating a Buy rating on Electronic Arts, Jefferies analyst Timothy O'Shea raised his price target on the shares to $90 from $80 as he believes Titanfall Apex Legends is the company's "hottest new game in years," drawing comparisons to Fortnite. The analyst also pointed out that analytics firm Spiketrap shows online sentiment for Apex is a positive 76 out of 100 based on a broad analysis across online channels like Twitter (TWTR), Reddit, YouTube (GOOG; GOOGL) and Twitch (AMZN). Google search trends also show Apex is basically equal to Fortnite, he added. Meanwhile, Piper Jaffray analyst Michael Olson also raised his price target for Electronic Arts to $99 from $87 saying Apex Legends has started strong following its surprise release on February 4. The Battle Royale title has captured gamer interest and is on a "blistering pace" for player count and concurrent user growth, Olson contended. While the analyst acknowledged that it is very difficult to gauge the long-term player growth, engagement and monetization opportunity for this title at this early stage, as of late last week, the player count and concurrent users were approximately 10% of Fortnite's equivalent metrics. Olson reiterated an Overweight rating on Electronic Arts' shares.
PRICE ACTION: In morning trading, shares of Electronic Arts have gained over 6% to $103.20.
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