Bank of America Merrill Lynch lowered its rating for both Electronic Arts (NASDAQ: EA) and Activision Blizzard (NASDAQ: ATVI) shares to neutral from buy due to the crowded holiday season and competition from Epic Games’ “Fortnite.”
On Thursday, EA shares fell nearly 10% after the Company delayed the release of its key game, “Battlefield V” and lowered financial guidance for the year.
"While we expected investor optimism on new titles to build through Sept., we believe Electronic Arts' (EA) guidance cut will change that dynamic, with future concerns on unit sales or ASP discounting possible," analyst Justin Post said in a note to clients Friday entitled "More cautious as some key franchises continue to slump."
Cutting estimates for Electronic Arts "highlights risks of a back-end loaded year, crowded holiday title slate and continued Fortnite pressure" on Activision, the note said.
Activision Blizzard shares are down 3% Friday, while EA shares fell 2.2%. The analyst lowered his price target to USD 126 from USD 159 for EA shares. He also reduced his target for Activision Blizzard to USD 77 from USD 84.
Post cited how "Fortnite" continues expand its user base on a monthly basis, which may negatively affect the large publishers' game sales later this year. Increased competition in the first-person shooter game market, as shown by the "Battlefield V" issues, will likely pressure publishers' high valuation multiples, he said.
Activision Blizzard shares are up 17% this year through Thursday, while EA's stock is up 10.4%. In the same time period, the S&P 500 rose 8.5%. But a crowded fourth quarter "may lead to spillover challenges in early 2019 as publishers vie for gamer engagement to drive live service initiatives," he said.