Stock of the week - Electronic Arts (01.09.2022)

The gaming industry has long been waiting for the emergence of some Deus ex machina that could change the dire sentiment towards the industry. Recently, the market tried to see such a signal in the possible purchase of a significant stake in Ubisoft by Chinese giant Tencent. We will have to wait a little longer for the details of the possible transaction, but nevertheless it was the news of the last few days that showed how much potential and appetite for a trend reversal lies in the minds and portfolios of investors. On Friday, August 26, markets circulated news of a potential takeover bid for gaming company Electronic Arts by e-commerce giant Amazon, which contributed to a several-percent rally in gaming bulls.

The power of rumor

On the aforementioned day, the markets were electrified by the news that Amazon would announce on the same day that it would acquire game publisher and developer Electronic Arts (EA). This is significant, since EA is the producer of such sales hits as FIFA, The Sims, Need for Speed, Battlefield, which hardly need to be introduced to anyone, and is one of the largest gaming companies in the world. According to USA Today reports, the announcement of the potential acquisition was to take the form of Amazon's official confirmation of a formal bid. The information follows news published in May about EA actively pursuing a sale or merger with Apple, Amazon, Comcast-NBCUniversal and Disney, and each of these entities was being considered as a serious candidate for a possible merger. Adding to the excitement of the whole potential deal was the fact that a possible acquisition of control of EA would be a huge win for Amazon and its efforts to enter the gaming market. EA controls a number of popular game franchises in various genres, including Apex Legends, Battlefield, Need for Speed, Medal of Honor, The Sims, SimCity and Mass Effect. It should also be remembered that EA acquired Codemasters last year, giving it control of a number of racing game franchises, including Formula 1, DIRT, DiRT Rally, GRID and Project CARS. In short, Electronic Arts represents an unusually greedy morsel.

A grain of truth?

Unfortunately, as it turned out very quickly, the rumor about the alleged acquisition of Electronic Arts by Amazon turned out to be ... just a rumor. An Amazon spokesman said the company does not comment on rumors and speculation. An EA spokesperson declined to comment. It seems that the rumor may have only been intended to create movement on Electronic Arts shares. Although could there be a grain of truth in it? If Amazon were to seriously consider acquiring EA, it could help it strengthen its position in the gaming industry. Amazon already owns Twitch, a streaming service popular with gamers, has launched its own cloud gaming service called Luna, and offers gaming perks as part of its Prime loyalty program. Amazon has been working hard in the M&A market. Earlier this month it said it planned to acquire iRobot, best known for its Roomba robots, for $1.7 billion. The announcement came just two weeks after Amazon said it would buy boutique primary care chain One Medical for $3.9 billion.

What's next?

Although Amazon's potential acquisition of EA should be considered a rumor for now, it's not worth writing off the scenario. The tech giants could potentially be interested in acquiring EA due to its strong licensing and protected intellectual property rights and also the growing potential of the 'Metaverse', which is ultimately expected to become a more immersive environment for gamers. EA has indicated that it will not be fully recession-proof which may mean that 'BigTech' will only become interested in an acquisition when the company's valuation becomes more attractive. In short, it may be that big M&A deals in the gaming market are yet to come.

Electronic Arts (EA.US) stock price chart, D1 interval. 

Source: xStation 5