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Paragus Rants

Rants, reviews, and interviews from an MMO veteran and guild leader.

Author: Paragus1

The Silver-Lining: EA Lost 50% of Market Value

Posted by Paragus1 Thursday June 21 2012 at 11:45AM
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The Silver-Lining: EA Lost 50% of Market Value

A friend of mine passed me a link to an article today that I found quite eye-opening in terms of EA (Electronic Arts) and their performance as a company in the markets as of late.  In short, it basically shows that EA as a company has lost 50% of its market value since November of 2011.  You can find the article here...

http://www.gamesindustry.biz/articles/2012-06-21-stock-ticker-why-eas-market-valuation-has-crashed/



Now I am not going to pretend to be an expert in the markets, as so many forum trolls often do, but this is very shocking data.   As many of you know, EA is the parent company a lot of different game studios, the most relevent to this community is Bioware (Star Wars: The Old Republic).  As many of you also know, the amount of money it took to create this project made it one of the most expsenive video games ever made, well north of $100 million.  Seeing as the decline started right around the time SWTOR released, the gamer in me clearly is thinking that this is probably not a coincidence.   The article also speculates from the investor side...

"Something has gone terribly wrong for EA, at least in the eyes of stock market investors. There are several plausible explanations for this - each of which is likely to be true to a certain degree, since it's unlikely that any one factor alone is responsible for driving the price down so far.

Firstly, there's Star Wars: The Old Republic. EA's stock price went into decline after The Old Republic's launch, and hasn't recovered yet - and that timing is unlikely to be a coincidence. Expectations among investors for SWTOR were extremely high, given the game's much-publicised high development costs (which probably make it the most expensive game project ever), the strength of the Star Wars license, the track record of developer Bioware and, crucially, the tantalising possibility of building an ongoing MMO revenue stream for EA which would match the one enjoyed by rival Activision Blizzard from World of Warcraft. While it would be unfair to characterise SWTOR as a complete failure, it has certainly not been a success on the level which EA or its investors would have wanted. The game has lost 400,000 subscribers since February, and it seems inevitable that the company will be forced into an embarrassing (but probably commercially sensible) transition to a free-to-play model sooner rather than later."


Let's take a look as well at the fact that earlier this week, we saw another article scrubbed off the internet that mentioned that the developers of TOR were considering the F2P model...

http://www.mmorpg.com/discussion2.cfm/thread/354256/Star-Wars-The-Old-Republic-Devs-Considering-F2P.html


Is there anyone reading this who still thinks that this game is not on a crash course for F2P?  This entire debacle is unfolding exactly the way many of us in the gaming community here saw even before the release.  If you are one of the many in the camp with me that thinks these cookie-cutter clone games need to stop being made, this might be a silver-lining.

It's sort of an old hashed saying on the forums around here that people need to stop giving money to companies that make bad games, because it only perpetuates the creation of more bad games.  Even if you buy a bad game and quit it, they still got your money because you voted with your wallet.  Gamers are a fickle bunch though, and seem to continue to support bad games and keep the cycle going, then try to justify doing it in the name of boredom or love of a certain IP / franchise.  While that exact same idiocy happened in this case, the investors on the back end who fund the creation of these games are now getting an epic financial burn.  Perhaps if gamers are too fickle to stop supporting garbage, the people who fund the creation of it will start doing what we as the consumers should have started doing a long time ago.



Paragus
Co-Leader of Inquisition

Qix213 writes:

While I am not much of a fan of EA, I dont want to see the studios they control go under.

With MMO's, they might get your intial purchase, but people don't have to keep paying.  It shows up a lot here as opposed to other style games where the initial purchase is all that matters.

Thu Jun 21 2012 7:29PM Report
HikaruShidou writes:

I stopped paying for EA games the moment they went to origin. In my opinion, that is what started their downfall.  Then on top of origin, they came out with TOR, which hardly even counts as an MMO, more like KOTOR 3 with online functions.

Sun Jun 24 2012 4:49PM Report
Inktomi writes:

Nice read Para, glad I have someone I can finally talk stock with. You are right, I follow a few MMO and vidya stocks as well. If you compare it to ATVI which is the symbol for Activision-Blizzard who have no problems raking in the cash. They were trading along the same pattern along with the S&P 500. Which is what all the big dogs on Wall Street watch more than the Dow. The Dow, Nas and S&P 500 are all up YTD between 6-10%. That's good, but not a real bull market. 

EA used to trade under ERTS,  is now down 44% YTD (Year to date, which is versus last year at the same time) and parted from the market/ATVI trading pattern at the exact time of the launch of the TorTanic. You are right, almost half of its market value, bad sign.

The stock had some heavy volume friday and since it is owned majorly by institutions then that is probably some institutional moving coming out of it. Really bad sign. 

My off-hand impression on the stock: it may test 12 bucks again, stay away if it goes below it. Next stop 10. If it doesn't, then it may find its trading level between 12-15 if it can recoup some of the losses from Tor. I'll keep an eye on it.

Good read para, bump from New York.

Sun Jun 24 2012 7:04PM Report
MMOGamer71 writes:

Good read.

I'm convinced that EA new SWTOR was a flop, hyped it and prayed for large unit sales to cover for the lack of game inside the box.

Mon Jun 25 2012 7:51PM Report
Kothoses writes:

While its a nice read, and while you take the figures well to meet your own point, you like many others missed a LOT of the transcript of the investor call.

 

I suggest reading it again, including the part where they say that in terms of Revenue and profit swtor is not in their biggest basket of eggs.

 

Most game companies are going through a share decline at the moment, a MUCH bigger part of the reason for this is that the current cycle of Consoles is coming to the end of its cutting edge life.

 

New Consoles are currently being developed for which means game studios are currently in the first part of that old phrase "Speculate to accumulate".

Add  to this that most stock markets have suffered a massive depression over the last 2 years and you start to see a much bigger picture coming to light.

Now love or hate console gaming, it is still the "commercially" bigger space.  Sure the biggest PC games are insanely well sold, but the majority of sales is still console games due to the cheap entry price to the market for the consumer (£200 console vs £1000 PC)

 

When you start to understand that consoles are nearing the end of their current cycle you understand that the vast majority of studio budgets are going into products and processes currently in a watertight NDA with the console makers.

 

Without a product to sell, investors struggle to see any short to medium term return on investment (This is the market MOST investors including hedge funds and corporate pension funds look at) they start to take their investment elsewhere, the lack of demand causes the deflation of price in available stock and thus you get a reduction in the price of stock, this combined with the fact that many electronic entertainment investors are holding onto their cash incase of the roumered Activision sale is also a much MUCH bigger factor than SWTOR.

 

Atleast thats how I personally read it.

Sun Jul 08 2012 1:57PM Report
Kothoses writes:

Also you forgot to include this graph which highlights a lot more of what I was saying.

 

http://images.eurogamer.net/2012/articles//a/1/4/9/3/7/7/9/Publishers_3.jpg.jpg

 

 

Sun Jul 08 2012 5:15PM Report

MMORPG.com writes:
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