Electronic Arts Inc. (Nasdaq: EA ) stock continued to drop Thursday, a day after the company announced it was closing its Visceral studio and delaying the release of a highly-anticipated "Star Wars" video game.
The decision will have a meaningful impact on EA's near-term earnings, but the company remains well-positioned as a market leader during a pivotal and profitable period in the video game business.
EA now has no timetable for the release of the untitled game, which was scheduled to follow " Star Wars Battlefront 2. " The game was under development at Visceral and was scheduled for release during EA's 2019 fiscal year.
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The company is shifting the game's development to a team led by EA Vancouver and said it will announce a new launch date.
EA said it made the changes after testing the game with players and "listening to feedback about what and how they want to play."
Morgan Stanley is expecting the untitled game to launch in fiscal 2021 and the firm has reduced unit sales projections from 8 million units to 7 million. Analyst Brian Nowak lowered his fiscal 2018 earnings per share estimate for EA by 8 percent to $5.36 but remains bullish on the stock.
"We acknowledge this delay, combined with the disappointing "Mass Effect" title from earlier this year is likely to fuel some investors' cries around the company's lackluster track record in developing new IP and titles," Nowak says. "These are challenges for EA to work through, but in our view EA is still likely to benefit [from] and drive the digital gaming transition … and we remain positive on the strong results set to come from 'FIFA,' 'Battlefield' and 'Star Wars Battlefront.'"
Oppenheimer analyst Andrew Uerkwitz says the transition from hardware to digital downloads is a tailwind for the entire video game industry . However, he prefers Take Two Interactive Software ( TTWO ) over EA due to its impressive upcoming release schedule.
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"We believe TTWO is set for refreshes of multiple key franchises over the next five years and that a build in internal development capacity will help generate revenue consistency," Uerkowitz says.
EA stock fell 2.4 percent on Wednesday, and was down another 1.3 percent Thursday in pre-market trading.
Morgan Stanley maintains an "overweight" rating for Electronic Arts but has reduced its price target for the stock from $128 to $126. Oppenheimer has an "overweight" rating for Take Two and has named the stock its top pick among emerging technology and services stocks .
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