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Stock Analyst Update

Launch Delay Pressures Electronic Arts, Shares Pricey

Delays are inherent in the video game business and in this case create a slight deferral, not loss, of revenue.

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On Aug. 30,  EA (EA) announced that Battlefield V, the next installment of its premier first-person shooter franchise, will now launch Nov. 20, a month later than previously planned. Developer Dice will use the additional time to make some final tweaks to the core gameplay for the title. Primarily as a result of the delay, management lowered net booking guidance for fiscal 2019 to $5.20 billion from $5.55 billion. We are maintaining our narrow moat rating and fair value estimate of $115 per share. Delays like this are inherent in the video game business and in this case create a slight deferral, not loss, of revenue. While shares fell over 8% intraday on the launch delay news, EA still trades in 3-star territory. We would seek a wider margin of safety to protect against far more meaningful risks (such as a release like Battlefield V flopping with customers) before investing in this high-uncertainty name.

While we don’t doubt that Battlefield V could benefit from more time to perfect its gameplay, we believe the core reason for the delay is a crowded release slate in October. Battlefield V’s original launch date of Oct. 20 is sandwiched between two highly anticipated games, Activision Blizzard’s Call of Duty: Black Ops 4 and Take-Two’s Red Dead Redemption 2. The latter title is a sequel to the 2010 Western shooter from Rockstar Games, which was one of the best-selling games of the previous console generation. We (along with many other analysts) expect RDR2 to be one of the top-selling games of 2018 as critic and fan excitement appears much higher for the title than competitors like Battlefield V.

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Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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