For this week's edition of "Game On," The Fly spoke with Stephens analyst Jeff Cohen for an exclusive interview to discuss matters in the sector mostly surrounding Electronic Arts (EA).
EA PLAY LIVE: EA hosted an EA Play Live event late last week, where the game maker premiered gameplay for "Star Wars: Squadrons," announced "Apex Legends" would be coming to Switch (NTDOY) and Steam, and unveiled new games such as "Rocket Arena" and "Lost in Random." When asked how investors should be feeling about the stock after the event, Jeff Cohen said he thinks they should be "feeling pretty positive," as the "Squadrons" trailer was "well received" and that "Apex" getting new platforms and crossplay "is really important for that game and can help build that franchise."
“All in all, I think it was a successful EA Play," he said. "Maybe if there was one area [to work on], there wasn’t too much around what BioWare is working on or any real reveal of the next Battlefield, even though we know it’s coming next fiscal year. But overall, pretty positive for investors to take away from this event.”
APEX: Given the mixed results of porting games from Xbox One (MSFT) and PlayStation 4 (SNE) to the Switch, as the Nintendo system isn't as powerful as its console counterparts, Cohen said people should be "a little bit" concerned, as it's difficult to build high-resolution games for the system, especially shooters. “More so than the Switch, I’m actually excited about Apex coming to Steam, because the game is very highly-played on PC, and I think for a lot of people Steam is the dominant platform for PC," the analyst noted. "So I think that’s actually going to be probably more material for the stock versus the game coming to Switch, but we’ll see.”
STAR WARS: EA stressed in its announcement of "Star Wars: Squadrons" that the game will feature customization items that can only be earned "solely through gameplay," indicating that paid microtransactions will not exist in the game, likely a response to the backlash EA received several years ago for its paid loot box system in "Star Wars Battlefront II." When asked if we should consider that particular era of "Star Wars" games over, where players simply purchase the game without any strings attached, Cohen said he doesn't know, as EA does include some kind of live services for most of its games. "I think it’s been EA’s stated goal to have live services for most of their titles, so I would think they would try to have some live service component," he said. "[But] just because they won’t have microtransactions doesn’t mean they won’t have some kind of live services. They can have DLC, they can have stuff like that that is sold after but isn’t a microtransaction.”
“I don’t want to speak for EA, I don’t know their plans for the Star Wars franchise and if it would have a live service component in the future, but that would be my view on it," the analyst added. "There’s a lot of live services they could do that aren’t as problematic as loot boxes.”
WBIE: CNBC reported last week that AT&T (T) is considering a sale of Warner Bros. Interactive Entertainment and that EA, Activision Blizzard (ATVI), and Take-Two (TTWO) have all expressed interest in acquiring the business. Following the news, Cohen said that he believes EA to be the best fit for a deal. When asked if he sees another major player coming in with a potential offer for WBIE, the analyst said he thinks it's "certainly possible." "First of all, I think [WBIE is] a great asset. They have a whole number of studios and great teams making games, and they have pretty strong IP. The only issue with the IP is it’s mostly third party, so you’d have to work out some licensing agreements. But I don’t think that’s a major hurdle to getting a deal done.”
Cohen said that there are "a number of players that could potentially look at this asset" outside the big three U.S. publishers, but that he's not sure one of the major console makers would make the move. “It’s hard to see any of the console players making that kind of deal just because, with the nature of buying that kind of asset, then making the games exclusive to one console, it makes it very hard to make the math work," he told The Fly. "But we are entering the next console war, and these players do have deep pockets, so anything is possible. But that’s less likely.”
When asked if a company such as Tencent (TCEHY) would be interested, he said that the Chinese company "is always a name that should come up in conversation." "I would also throw NetEase (NTES) in there," Cohen noted. "Warner Bros. already has a deal with them to make a Lord of the Rings game. They’re one that’s been looking westward for a few years now, maybe this is a move they want to make to get bigger in the West. I still think EA is the best fit. They have an existing relationship with Warner Bros., with Warner Bros. being one of the few third parties on the Origin subscription platform. They have a strong mobile business, which is an area where EA needs a little bit of shot in the arm. And EA is very comfortable working with big third party licenses.”
EA M&A: On the topic of EA looking at more M&A opportunities going forward, the analyst said he would "broaden that out even more so." "I think, in general, as we’re heading into the next console cycle, a lot of these publishers are looking to bulk up and gain sales through acquisitions," he said. "So I wouldn’t say EA is special in that regard. Activision, Take-Two, EA, Ubisoft (UBSFY) have all talked about the desire to be acquisitive and gain scale. I think one phenomenon we saw in this console generation is that console publishers move to fewer bigger, better releases [each year] and pare back their catalogues. That made them much more profitable because you didn’t have as many flops, but it also meant you had some years with not many games from big players.”
“I do think you’re seeing these companies be acquisitive to broaden out their catalogues a little bit," the analyst added.
"Game On" is The Fly's weekly recap of the stories powering up or beating down video game stocks.
Electronic Arts
+2.84 (+2.19%)
Nintendo
+ (+0.00%)
Microsoft
+2.49 (+1.24%)
Symbol now SONY
+0.32 (+0.45%)
AT&T
+0.44 (+1.46%)
acquired by MSFT
+0.97 (+1.27%)
Take-Two
+3.21 (+2.28%)
Tencent
+ (+0.00%)
NetEase
+16.83 (+4.03%)
Ubisoft
+ (+0.00%)