Gaming as an industry has had its fair share of scandals throughout 2018, with major companies such as Electronic Arts (NASDAQ: EA), Bethesda Softworks (NASDAQ: TTWO), and Activision Blizzard Inc (NASDAQ: ATVI) all suffering major scandals that saw their stock prices decline.
However, EA investors last week were treated to a 16 percent jump in share prices when the company announced their Fortnite competitor, Apex Legends, had already attracted 10 million new players in the first 72 hours on the market. Today, however, the company’s shares surged an extra 6 percent after hours today when Merrill Lynch upgraded EA’s rating to buy based on the game’s performance.
These positive developments have been much needed for the gaming giant, which suffered a poor Q4 as its stock dropped down to $80.21 after the terrible performance of Battlefield V. This new project, developed by gaming studio Respawn Entertainment, will hope to capture some of the opportunity corporate executives see behind the free-to-play phenomenon of Fortnite, which is shown to have 80 million active users and generated over $3 billion in revenues. Most of this revenue comes from in-game purchases and upsells, as opposed to upfront purchases or subscription models that other games rely on.
Vince Zampella, head of Respawn Entertainment, went on to write last week that “never in our wildest dreams could we have expected the outpouring of support and positivity we’ve seen.” He added that “we knew it would be risky to take the franchise in this direction, to go free to play, and do a surprise launch.”
Merrill Lynch, which estimates Apex Legends will have over 40 million users in the future, upgraded EA shares from Neutral to Buy and raised its target price from $95 to $110. Currently, analysts expect that the game could generate up to $300 million in high-margin revenues, adding that marketing costs for the title were almost nonexistence. In contrast, most other triple-A, blockbuster games have had marketing budgets of at least $50 million.
As of this article, EA’s share price sits at $103.71, up 6 percent in after-hours trading. While the stock price is a far cry from its former high of $151.26 in July 2018, the surge in price could help see the stock breakaway from what has been a troubling six-month decline for shareholders. EA has had a history of high-profile scandals in the gaming industry, which include the controversial “loot box” issue concerning an earlier release, Star Wars Battlefront 2. The success of Apex Legends could be a much-needed reprieve for a company historically associated with a poor image in the industry.
Electronic Arts Company Profile
Electronic Arts Inc., incorporated on May 8, 1991, develops, markets, publishes and distributes games, content and services that can be played by consumers on a range of platforms, which include consoles, personal computers (PCs), mobile phones and tablets. The Company’s games and services are based on a portfolio of intellectual property that includes established brands, such as FIFA, Madden NFL, Star Wars, Battlefield, the Sims and Need for Speed. The Company markets and sells its games and services through retail channels and through digital distribution channels. – Reuters