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EA Plans to Sell or Merge: Will AAPL, AMZN, DIS Show Interest?

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Video gaming giant Electronic Arts (EA - Free Report) is looking for potential suitors to sell itself or merge with. Reportedly, EA has already discussed its plans with tech and media companies like Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) and The Walt Disney (DIS - Free Report) .

According to a report from Puck, EA even held merger talks with NBCUniversal that now seem to have failed as the parties couldn’t apparently settle their differences over price.

Although nothing official has yet been announced, a deal between EA and any of these companies will create ripples in the video game as well as media entertainment industry. EA, with a market cap of $37.62 billion, boasts a strong player base (0.5 billion player accounts at the end of fiscal 2022) and an enviable gaming portfolio that includes the likes of Apex Legends and The Sims.

However, the loss of exclusive licensing to develop games based on Star Wars and the end of the 25-year-old partnership with FIFA do not bode well for EA’s prospects. This Zacks Rank #3 (Hold) company faces stiff competition in the video game industry, which is witnessing unprecedented consolidation with Microsoft (MSFT - Free Report) buying Call of Duty maker Activision Blizzard, Sony acquiring Destiny-developer Bungie and Take Two Interactive recently completing the Zynga buyout.

Take Two paid $12.7 billion for Farmville-maker Zynga while Sony spent $3.6 billion for Bungie. Microsoft, another Zacks Rank #3 stock, will be paying roughly $68.7 billion ($95 per Activision share), making it the company’s largest deal ever, which is now facing probes by the Department of Justice as well as The U.S. Federal Trade Commission.

EA has also been in an acquisition mode in the past couple of years, buying Codemasters (for $1.2 billion), Glu Mobile (for $2 billion) and Playdemic (for $1.4 billion). The acquisitions are expected to have strengthened EA’s competitive position in gaming genres like racing, casual sports, lifestyle and mobile.

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Nevertheless, EA is facing increased competition to win market share with expanding presence of Microsoft, Sony and Take Two Interactive in the video gaming space. Shares have risen 4.5% in the past couple of trading sessions following the circulation of merger/sell rumors, reflecting positive investor reactions.

EA is up 3.6% year to date against the S&P 500 composite’s decline of 17.1%. Shares of Apple, Amazon, Disney and Microsoft have declined 21%, 37.6%, 34.5% and 22.8%, respectively, over the same time frame.

Apple, Amazon or Disney: Who is a Better Suitor?

Apple as a potential buyer is exciting news for investors as EA’s addition will give it a strong foothold in the video gaming space. Buying EA outright will not be tough for this Zacks Rank #3 (Hold) company due to its huge cash balance of $202.6 billion as of Mar 22, 2022.

The iPhone maker has its gaming service — Apple Arcade — which although not as popular as some other services offers classic mobile games like Angry Birds.

EA’s addition will definitely bring Apple into the big league of video game makers, making it a direct competitor of Microsoft and Sony. Apart from upgrading the game content portfolio of Apple Arcade, the acquisition will help Apple promote the gaming capabilities of its much-rumored AR/VR headset.

Meanwhile, Disney does not seem to be interested in buying EA, if rumors are to be believed. The company is currently focused on developing its Disney+ platform. Thanks to its robust content portfolio, this Zacks Rank #3 company remains on track to achieve its guidance of 230-260 million paid subscribers for Disney+ by the end of fiscal 2024.

Disney’s leveraged balance sheet is also a concern. Total borrowings were $46.6 billion as of Apr 2, 2022, compared with $54.1 billion as of Jan 1, 2022. Disney’s debt balance compares unfavorably with cash, cash equivalents and its current marketable investment securities balance of $13.27 billion.

Amazon, on the other hand, can be a good suitor for EA. The e-commerce giant’s Twitch platform is a well-known venue for esports and its cloud gaming platform Amazon Luna is a direct competitor of Google Stadia. The addition of EA will definitely help Amazon in achieving its gaming ambitions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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