BofA Securities analyst Omar Dessouky downgraded the shares of Electronic Arts Inc (NASDAQ:EA) from Buy to Neutral and lowered the price forecast from $170 to $130.

The analyst is no longer confident the company can capture enough player engagement and spending to achieve significant growth in the struggling PC/Console gaming market.

Comments regarding Global Football contributing significantly to the $350 million – 450 million (BofAe) reduction in Live Services bookings suggest that FCUT likely saw a double-digit decline year-over-year, and management anticipates at least another quarter of continued decline.

According to the analyst, the reasons for this downturn remain unclear. Possible explanations include poor execution, seasonal impacts like holiday travel, or structural issues such as a saturated global player base.

Without FC as a key growth driver, the analyst finds it hard to see how EA can sustainably outperform the industry while improving its margins since FC contributes to around 60% of EA’s operating income, with Ultimate Team likely being one of its highest-margin games.

Yesterday, the company reported preliminary financial results for the third quarter, with revenue of $1.883 billion versus estimates of $2.507 billion.

The analyst has lowered EPS forecasts for FY25 and FY26 to $6.84 and $6.78 (from $7.86 and $8.65 previously) and cropped the growth estimate for FY26 to just 2%, assuming FC will not experience growth.

Although the analyst is seeing weakness in third-quarter, it is soon to assume that FC is in long-term decline for several reasons, including the recent downturn since November, which seems abrupt and might be due to seasonal factors. Monetization has steadily improved since the launch of FCUT, and the FC player base has remained fairly stable.

The analyst awaits further clarity on the cause of FC’s weakness in the quarterly earnings call in February.

The price forecast of $130 is based on based on 19x (21x prior) $6.78 FY26 EPS.

Price Action: EA shares are trading lower by 16.9% at $118.28 at the last check Thursday.

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This article Electronic Arts' Growth Questioned: Analyst Downgrades Stock Amid Struggles In Gaming Engagement originally appeared on Benzinga.com

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