EA’s stock price takes a beating, and analysts see change coming to loot boxes

A monthlong slide in Electronic Arts’ stock price, which mainstream financial press has attributed to the Star Wars Battlefront 2 loot box controversy, has caught the company’s attention, and is likely to spur changes to EA’s microtransactions approach.

But one prominent analyst says any changes won’t come imminently. And, it must be said, EA’s stock price today is still almost $25 above what it was a year ago.

“I’m quite confident that this debacle will influence EA’s future behavior,” said Michael Pachter, the well known analyst for Wedbush Securities who focuses on the video games industry. Pachter noted that EA’s stock price drop comes as major competitors’ shares have gone up, and the overall market is up. “Clearly, investors are voicing their discontent by selling the stock,” Pachter said.

But what comes next? Electronic Arts, after all, suspended the sale of microtransactions in Battlefront 2 a day before its formal launch (which included all of the PlayStation 4 player base). And the dip in its share prices began Nov. 1, when the company revised its December quarter sales forecast downward. While a beta test of the multiplayer had exposed players to the loot boxes, and their reactions did result in some changes, the mainstream backlash to loot boxes and how they influence progression in Battlefront 2 really didn’t begin until the game’s preview launched to EA Access and Origin Access subscribers nine days later.

Still, it has been plenty enough to get investors interested in a gameplay feature, and while EA may not do anything soon, Pachter thinks it will ultimately change the company’s behavior.

“I think EA got ahead of itself in presuming that MTX [microtransactions] would work equally well in all games,” he said. Pachter was comparing the loot crates seen in Battlefront 2 (and also Need for Speed Payback) to the longer running Ultimate Team modes in EA Sports’ titles. EA chief financial officer Blake Jorgensen said back in March that Ultimate Team now delivers $800 million in revenue annually.

The difference, as Pachter notes, is that with Ultimate Team there are still several modes of play that the user gets that are entirely uninvolved with microtransactions.

“In FIFA, the single-player game allows access to all players, and only the Ultimate Team multiplayer mode requires card collection,” Pachter said. “The same is true of [Grand Theft Auto 5] vs. GTA Online, with the former having all content available and the latter (multiplayer) creating items for MTX purchases.”

But in Battlefront 2, player progression is substantially influenced by acquiring loot boxes. While nearly every advanced weapon is unlocked through in-game performance (a certain amount of kills, for example) the Star Cards that deliver perks, buffs and other performance bonuses come only from crates. Crates require a significant but not necessarily onerous amount of in-game currency that’s awarded in all modes of play. Until they were deactivated during the Access trials, “crystals,” which are only bought for real money, could bypass that entirely.

But another irritant is the fact players have no idea what they’re getting when they buy a loot crate, a practice some Hawaii state legislators likened to gambling — a contention EA and the Electronic Software Association vigorously dispute.

“We pulled off on the MTX because the real issue the consumer had was they felt it was a pay-to-win mechanic," Blake Jorgensen, the Electronic Arts chief financial officer, said yesterday (via Eurogamer) at the Credit Suisse Annual Technology, Media and Telecom Conference. “The reality is: there's different types of players in games. Some people have more money than time, and some people have more time than money, and you want to always balance those two.”

However, microtransactions are returning to Battlefront 2. Electronic Arts has given no timeframe for this, and Pachter originally estimated they would be restored by January, but now he thinks it may take a little longer.

“I truly think that the problem with Star Wars is that it couldn't follow the Overwatch model (sale of cosmetic items) because the underlying Star Wars Universe is so well-defined,” Pachter said. Jorgensen alluded to this in his remarks yesterday, saying “if you did a bunch of cosmetic things, you might start to violate the canon,” using a pink-colored Darth Vader as a hypothetical example.

That doesn’t account for why Battlefront 2’s 2015 predecessor had customization options (such as helmet-less Stormtroopers, and Rebel soldiers of different genders and ethnicities with different headgear). This customization menu, purportedly found a by a YouTuber yesterday, also speaks to EA having some means to offer cosmetic changes to players. And in a Reddit AMA two weeks ago, developers for EA DICE mentioned that they had heard player disappointment that customizations weren’t available at launch and were working toward implementing them in the game later.

That said, with Star Wars, EA is not as free as other big publishers are to monetize cosmetic options, which may be why player progression is a part of Battlefront 2’s loot crate system.

“Blizzard is free to allow customization of armor, weapons, hair styles, etc. in Overwatch because there is no preconception about what the characters should look like,” Pachter said. “It is probably against EA's license agreement with Disney to allow people to dress their Imperial Stormtroopers in yellow or green armor. Without being able to offer cosmetic items, EA was compelled to lock characters in order to achieve their MTX revenue plans.”

While stock price dips must be placed into a longer term perspective, Pachter thinks enough has gone on over the past month to get EA’s attention and to get it to change its behavior. It is true that a $10 drop in the share price amounts to about $3 billion in market capitalization — but EA’s total market cap is $33 billion, and $7.6 billion of that was added in the last year.

“I'm quite confident that this debacle will influence EA's future behavior,” Pachter said. “Management will take this seriously, and will endeavor to handle MTX more elegantly in the future.”

And for EA’s part, Jorgensen told investors the bad experience with Battlefront 2 is not going to cause the company to abandon microtransactions.

“We’re not giving up on the notion of MTX,” Jorgensen said. “We're really watching how people are playing the game. We're trying to understand are there certain modes where MTX may be more interesting than not?

“We're learning and listening to the community to decide how best to roll that out in the future.”