Electronic Arts and the Star Wars In-Game Purchase Fiasco
Electronic Arts Inc EA has been in the news since the messed-up launch of its highly anticipated game, Star Wars Battlefront 2 last week.
Released on Nov 17, Battlefront has received mostly okayish kind of reviews but apparently it was the outrage over the exorbitant pricing of in-games purchases that compelled EA to temporarily turn off all micro transactions in the game. EA’s shares have lost 1.1% of their value since Nov 17.
EA’s move to stall in-game micro transactions has found support from The Walt Disney Company's DIS Lucasfilm, the production company behind Star Wars. The Washington Post quoted Lucasfilm saying, “Star Wars has always been about the fans--and whether it's Battlefront or any other Star Wars experience, they come first. That's why we support EA's decision to temporarily remove in-game payments to address fan concerns."
Electronic Arts Inc. Revenue (TTM)
Electronic Arts Inc. Revenue (TTM) | Electronic Arts Inc. Quote
In a SEC filing, EA said that the removal of in-game purchases will not impact fiscal 2018 guidance. EA also added that the in-game purchases will be available at a later date.
However, an analyst with KeyBanc Capital Markets said that the anger was exaggerated. He was quoted by CNBC saying “Gamers aren't overcharged, they're undercharged (and we're gamers). … This saga has been a perfect storm for overreaction as it involves EA, Star Wars, reddit, and certain purist gaming journalists/outlets who dislike MTX."
He further added, “If you take a step back and look at the data, an hour of video game content is still one of the cheapest forms of entertainment. Quantitative analysis shows that video game publishers are actually charging gamers at a relatively inexpensive rate, and should probably raise prices.”
Electronic Arts found tremendous success with Star Wars Battlefront. Battlefront sold 14 million copies in fiscal 2016. Given this, it was widely expected that Battlefront 2 sales will also be somewhat around that mark. However, this controversy has been a dampener and analysts expect sales to be lower than its predecessor.
Given the controversy, month to date, shares are down over 10%. Year to date, shares are up 37% but have underperformed the 48.2% rally seen in the industry.
Currently, Electronic Arts has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Better-ranked stocks in the video game space are Take-Two Interactive Software, Inc. TTWO and Activision Blizzard, Inc. ATVI. While Take Two sports a Zacks Rank #1, Activision carries a Zacks Rank #2 (Buy).
Long-term earnings growth rate for Take Two and Activision is currently projected to be 15.4% and 13.8%, respectively.
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Walt Disney Company (The) (DIS) : Free Stock Analysis Report
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