A tale of stock and awe: EA’s fall from glory

After seeing a tweet pointing out Electronic Arts’ (EA’s) declining stock price over the past six months, I decided to start looking deeper into what may be influencing the price. I was particularly interested to see what Battlefield V’s relation was to the drop, as I did not really expect a single game to cause these kinds of reductions in stock price, despite how many gamers were not too happy with the game from the time of it’s announcement up to and including now.

Originally, I started looking into the report of pre-order sales being weak for Battlefield. I was surprised to see that, while this did effect EA’s stock, it only resulted in a decline of $3.86 USD ($131.91 Aug 14th, to $128.05 Aug 15th). I expected a more substantial decline as a result of this news, but, upon reflection, I was not considering the other IPs EA owns. I am only examining the closing price of the stock so it is possible there may have been larger fluctuations in the price, but my aim in this article is to look into the overall trends.

Battlefield V
Battlefield 5 Announcment triailer, look at that like to dislike ratio.

Even before the news of weak Battlefield V sales (Aug 14th), there was already a sharp drop in EA’s stock Price. The sell-off started on July 26th, which corresponds with EA releasing its Q1 Fiscal Year 2019 (Q1 FY19) earnings report. The report showed a decline in revenue and acute decrease in earnings per share (down 54% from the previous year). The resulting sharp fall in EA’s stock did not cease until July 30th, having fallen from 146.50$ to 126.21$ (a 13.84% decline in value).

The launch of Origin Access appears to be what finally stopped that sharp decline in the stock price. While there was no sudden upturn in price after the announcement, the price slowly began to rise back up. However, with the leak from Patrick Söderlund after his departure (Aug 14th), EA’s stock price went back on the decline as stated earlier. This decline was not as severe as the previous one, taking approximately two weeks to go from $131.91 (Aug 14th) to $128.52 (Aug 29th) (a 2.57% drop).

This brings us to the first news that can be directly linked to Battlefield V and a corresponding drop in EA’s stock price that was truly severe; On the 30th of August, EA announced that Battlefield V would be delayed. EA attempted to do damage control at this point by stating, “Moving the launch of Battlefield V out by four weeks will enable EA to deliver the best possible experience for gamers but will push some net bookings out of fiscal year 2019 and into fiscal year 2020.” The resulting sell-off after this news suggests that stockholders were most likely not satisfied with what EA was telling them; instead choosing to believe EA lacked confidence in the game. Between the 29th of August and September 5th, the price dropped from $128.52 to $111.55 (a 13.2% drop). Originally Battlefield V was scheduled to launch on October 23rd, putting it in direct competition with Red Dead Redemption 2 (Release Date: Oct 26th) and Call of Duty: Black Ops 4 (Release Date Oct 12th), which would be a problem as many people would not likely be willing to spend approximately 200$ so quickly on games. This likely contributed to the push-back.

The tides turned back in EA’s favor when it was announced that FIFA 18 had sold 24 million copies worldwide, and investors started to look towards FIFA 19. While their press release does not clearly state it, FIFA Ultimate Team™ is one of EA’s biggest revenue generators.

In fiscal 2017, Ultimate Team across FIFA and Madden NFL generated 17% of EA’s total revenue. (John Ballard, The Motley Fool)

That 17% of total revenue means EA brought in 823.65 Million through loot boxes from those games, which accounts for 28.65% of their total digital revenue. With loot boxes bringing in Millions for them, EA does not want to remove loot boxes from FIFA Ultimate Team.

Breakdown of Digital Revenue (All amounts in Millions of Dollars) – Source: The Motley Fool

The news about FIFA 19’s sales being down 25% versus FIFA 18 had investors, yet again, bailing on EA. Because this drop only takes into account physical sales, it is unlikely that there was a total change greater than 10%. To help bring extra context to this, the Motley Fool has a table that breaks down digital revenue as a percentage of total revenue for EA from 2010 to 2017.

The announcement of a new Sims 4 expansion pack helped to bring back investors, but this rise in price was brief. Looking through the internet, I am unable to find any clear signs of why the price began to decline once again. The only thing that I can chalk it up to at this time is investor nervousness about previously mentioned news.

EA revenue breakdown

This brings us to the launch of Battlefield V, or rather the Origin Access trial, on November 9th, appearing to fuel that final clear downwards tick. With the game appearing to be unfinished and many unsatisfied with the product they received in the end, it has put the final nail in the coffin for EA for 2018. At this point in time it is extremely unlikely we will be seeing any sharp turns resulting in massive gains for EA, but, on the flip side, I also don’t think there will be any more major losses either (for the rest of 2018 at least).

The next game that most people seem to be looking towards from EA is Anthem. While I am not personally holding high expectations for the game, I could be wrong; it could be a massive hit. Only time will tell, but, before the launch of Anthem, the next big challenge for EA will be releasing their Annual Earnings report. Based on everything that I have seen thus far, I do not expect that report to bring confidence to investors.

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