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Electronic Arts shares drop after Wall Street raises concerns over 'Star Wars' game sales

Key Points
  • Electronic Arts shares are falling after the publisher gave a December quarter forecast slightly below Wall Street estimates.
  • "Despite raising F18 guidance, investors may focus on below-consensus F3Q EPS, reflecting some expense timing shifts and lower-margin licensed titles [such as Star Wars]," Baird analyst Colin Sebastian says.
Electronic Arts shares drop
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Electronic Arts shares drop

"Star Wars Battlefront II," Electronic Arts' biggest game this holiday season, is the big question mark for the high-flying stock.

The video game publisher reported better-than-expected fiscal second-quarter earnings on Tuesday and raised guidance for the full year, but its December quarter forecast was slightly below Wall Street estimates.

EA shares were down 5 percent Wednesday.

"Despite raising F18 guidance, investors may focus on below-consensus F3Q EPS, reflecting some expense timing shifts and lower-margin licensed titles [such as Star Wars]," Baird analyst Colin Sebastian wrote in a note to clients Wednesday.

Sebastian reiterated his outperform rating and $130 price target for EA shares.

Jefferies' analyst Timothy O'Shea said he is not totally confident about the financial success of the "Star Wars" game release this month, questioning whether users will behave the same way as users of EA's other popular games.

"If Star Wars can encourage users to spend real money on virtual goods (like FIFA) the game could drive meaningful upside to F'18 and '19 EPS, but this is not a certainty," O'Shea wrote in a note to clients Wednesday entitled "Star Wars Battlefront 2: A Trick Or a Treat?"

One Wall Street analyst, Cowen's Doug Creutz, said he is worried EA's financial guidance may not be low enough. In a note, he did say that EA is well positioned for growth over the long term, with a strong presence in the rapidly growing mobile gaming segment. But he added: "We think FY18 guidance is not as conservative as usual, and that there are few interesting catalysts to drive incremental investor interest over the next 12 months."

Creutz reaffirmed his market perform rating and a price target of $106, which is $11 lower than Tuesday's closing price.

EA's stock is up 52 percent year to date through Tuesday compared with the S&P 500's 15 percent gain.

The company did not respond to a request for comment on the Wall Street analyst research.

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