BMO Capital Markets thinks Electronic Arts could be negatively impacted from the blocking of the Microsoft – Activision Blizzard deal. The firm downgraded EA stock to market perform from outperform Thursday. BMO now forecasts a flat return on the stock with a $125 price target, down from $150. The stock closed at $125.12 on Wednesday. Shares of the video game company have gained 2.4% from the start of the year, and are up 5.1% over the past month. The company reduced its workforce by about 6% in late March and slimmed overhead office space. But BMO says because the UK Competition and Markets Authority’s stopped Microsoft’s takeover attempt of Activision Blizzard , the failure will be a cautionary tale for company’s seeking large deals in the space. EA YTD mountain Shares of Electronic Arts could face more pressure after the fallout of the takeover deal from Microsoft of Activision Blizzard. “We 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,” BMO analyst Gerrick Johnson wrote. The CMA was not persuaded by Microsoft’s argument that the deal stoke competition, but would instead stifle it. However, the regulatory body did stipulate that Microsoft could make Activision games exclusive to cloud gaming platform Xbox Game Pass. And the shift toward free-to-play products that monetize in-game purchases (MTX) is yet another headwind to EA, Johnson said, especially given headline macroeconomic headwinds and a more challenging environment. “Spending has been pressured for both full games and MTX as consumers’ budgets have compressed owing to inflation and interest rates. We expect this to persist,” Johnson said. — CNBC’s Michael Bloom contributed to this report.
