What's the Deal with EA Stock?

Estimated read time: 5 minutes

Most of us are already familiar with the video game industry. Whether buying a game for yourself or picking up a gift for the holidays, it's tough to avoid an industry that's worth more than $100 billion.

You already make room for video games in your budget, but should you make room for video games in your investment portfolio?

Let's take a look at one particular video game company: Electronic Arts.

What is Electronic Arts?

EA is the second-largest video game company behind Activision Blizzard. At roughly 37 years old, it's also one of the oldest video game companies. It played an influential role in the development of sports games and sandbox games. The popularity of franchises like "The Sims," "FIFA," and "Madden NFL" has endured for more than a decade.

The company is based in Redwood City, California. It was founded by Apple alum Trip Hawkins. After about 12 years with EA, Hawkins resigned from the board in 1994.

Potential investors will want to know that EA's CEO is Andrew Wilson, who took the helm at the company in 2013. That was the same year the company "earned" its second-straight "Worst Company in America" award. The company has recovered its image somewhat since then, but its stock still trades below what it did a year ago. Throughout 2018, EA shares shed roughly 25% of their value.

The 2018 Challenge: Battlefield V

One factor that analysts pin the year-over-year decline on is "Battlefield V." The first-person shooter "Battlefield" franchise has built up a devoted following since its 2002 release. Unfortunately for EA, that fan base didn't turn out as much as they did for other franchises this year. "Battlefield V" didn't even crack the top 10 list for 2018's best-selling games (it came in at #14).

Those who did play had mixed or muted reactions. The game scored a 7.5/10 with IGN, a 73% with Metacritic, and a 3/5 with Eurogamer.

A delay in development didn't help matters. The game was supposed to come out October 19. At the end of August, less than two months before the release, EA announced that it would delay the game's release until November 20. Two of the biggest competitors for "Battlefield V" also had October release dates, but both "Red Dead Redemption 2" and "Call of Duty: Black Ops 4" hit their target release dates. Some analysts argued that the delay gave "Battlefield V" breathing room from those two massive releases, but it also gave the game less shelf time during a crucial shopping period.

Games like "Fortnite" are upending the traditional video game industry as a whole, and EA has been hit as hard as any other gaming giant.

Closing 2018: A Reputation Crisis and a Steady Decline

Gamers' disappointment with EA wasn't limited to "Battlefield V." The company didn't churn out any surprise hits to offset "Battlefield's" missed expectations. Only two other EA games ranked among the top 20 for sales: "Madden NFL 19" at #4 and "FIFA 19" at #13. Activision Blizzard secured two spots on the list, Take 2 Interactive nabbed three spots, and Nintendo commanded the list with six spots.

Even before 2018, EA struggled to overcome a poor reputation in the gaming community. EA has jumped onto trends in recent years, sometimes abandoning core players in the process. Some gamers felt like games catered only to online multiplayer modes and released games with subpar single-player campaigns.

EA has also repeatedly stated its commitment to microtransactions. A microtransaction is a small purchase within a game to unlock extra content. Those small purchases add up. They're most often associated with games that are otherwise free to play, like "Pokemon Go" or "Fortnite," but EA has introduced them to games like "Star Wars Battlefront 2," which costs money upfront to play. Some argue that business structure isn't accessible to people in all financial situations.

Finally, EA is notorious for acquiring smaller game developers and gutting them. Even when smaller developers like BioWare continue to create popular installments to beloved franchises, they usually do so without original leadership. Hardcore fans sometimes say they notice the difference.

Aside from reputation issues, Electronic Arts also faces an increasingly large legal issue. It stems from one type of microtransaction known as a "loot box." Rather than offering the assurance of a product, "loot boxes" offer a chance to win digital goods. Loot boxes usually offer some sort of power up, but they're are randomized. Unlike everyday purchases, you have no idea how much the product you're buying is actually worth.

Not only did gamers accuse the company of imposing a pay-to-win structure, regulating agencies have raised concerns about gambling. In Europe, some governments have already taken action. Belgium and the Netherlands ruled in April that loot boxes technically qualify as gambling. That made games like FIFA illegal, and EA had to disable the feature in those countries. Concern is spreading, so more countries may soon follow suit.

That includes the U.S. In the end of 2018, the Federal Trade Commission announced it would study the issue of loot boxes. New Hampshire Senator Maggie Hassan has been among those spearheading the effort to regulate loot boxes. She first sent a letter to the gaming industry's self-regulation agency, the ESRB, before questioning FTC commissioners directly.

Say No to EA Stock

With everything going on, now is not the time to invest in EA stock. Games like "Fortnite" are upending the traditional video game industry as a whole, and EA has been hit as hard as any other gaming giant. Traditional sources of revenue are drying up, which creates all the challenges that come along with losing money. Given that gamers didn't have a positive outlook on EA to begin with, there's less of a loyal fanbase dedicated to supporting the company through this tough time for video games.

EA's executives have struggled to calm concerns. Top executives have sold off massive amounts of stock in the past couple years. They aren't selling everything, but they're selling off millions at a time. That sends a bleak signal to investors who are hoping for EA to pull through this tumultuous time in the near future.