EA slips as BMO downgrades on smaller takeover chance after UK ruling
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Electronic Arts (NASDAQ:EA) shares fell around 1.5% in pre-market trading on Thursday as investment firm BMO Capital Markets downgraded the video game maker, citing less of a chance of a takeover after the U.K. blocked Microsoft's (NASDAQ:MSFT) proposed $69B takeover of Activision Blizzard (NASDAQ:ATVI) on cloud gaming concerns.
Analyst Gerrick Johnson lowered his rating on EA (EA) to market perform from outperform and reduced his per-share price target to $125 from $150, noting that there was a chance there would be consolidation in the industry, given that large tech firms are "eager" to bolster their video game offerings. After the U.K. ruling, that's unlikely to happen, at least on a large scale.
"[W]e think the tumultuous and costly MSFT/ATVI experience, culminating with a critical UK rejection, could dissuade potential suitors from attempting big, multi-billion dollar deals, perhaps turning towards more bite-sized, sub-$1 billion deals, thereby reducing the takeout premium built into EA shares," Johnson wrote in an investor note.
In addition, Johnson noted the free-to-play and in-game monetization model has never been "tested" during economic stress and the early results have not been good as consumer spending has slowed.
Johnson also noted that EA's (EA) mobile strategy looks to be "in flux" and the strategy of bringing AAA-rated console games to mobile to increase the number of users is behind schedule. 
"If EA is to retrench to puzzle games and the Kardashians, we'd find EAâs mobile assets less appealing," Johnson added.
Analysts are largely bullish on EA (EA). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates EA a HOLD.
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