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Analyst cuts EA profit estimates after social media uproar leads to 'Star Wars' game sales plunge

Tae Kim
Chesno. Bank of America Merrill Lynch lowers its price target and profit forecasts for Electronic Arts shares due to poor sales of its "Star Wars" title.

Electronic Arts (EA) will reinstitute in-game purchases in its "Star Wars Battlefront II" title despite recent wavering by one of its top executives, according to a Wall Street firm. Bank of America Merrill Lynch lowered its price target and profit forecasts for Electronic Arts shares due to poor sales of the "Star Wars" game. "EA has had a challenging C4Q, beginning with the shutdown of Visceral Games and now Battlefront 2 (BF2) controversy," analyst Justin Post wrote in a note to clients Monday entitled "Lowering ests for BF2; Stock weakness sets up for a better 2018." "As controversy subsides post-holidays, we expect investor interest to pick up ahead of a stronger FY19 title slate, renewed digital optimism, and operating leverage potential. Battlefront MTX relaunch and FIFA World Cup content launch are key 1H events." Post maintained his buy rating and reduced his price target to $130 from $137 for Electronic Arts shares, representing 23.5 percent upside to Friday's close. The analyst noted how EA shares have "materially underperformed" since the end of September falling 11 percent versus the S&P 500's 5 percent return. He said November U.S. physical game unit sales of "Star Wars Battlefront II" declined 52 percent versus 2015's "Star Wars Battlefront" in its first month, according to NPD sell-through data. As a result, Post predicts the title will miss the company's guidance of 14 million unit sales by 2.5 million. The analyst lowered his earnings estimates for EA's fiscal 2018 earnings-per-share to $4.22 from $4.28. He also reduced his fiscal 2019 forecast to $5.02 from $5.14. Electronic Arts announced Nov. 16, a day before the "Star Wars Battlefront II" game's official launch, that it is temporarily turning off all in-game purchases for the game in response to negative sentiment from gamers. "It's clear that many of you feel there are still challenges in the design. We've heard the concerns about potentially giving players unfair advantages. … Sorry we didn't get this right," EA wrote in the post. The company told gamers then it will change the micro-transaction model for the game in the future. However, EA's chief financial officer, Blake Jorgensen, at NASDAQ investor conference on Dec. 5 seemed to be open to turning off micro-transactions permanently for the title. "Over time, we'll address how we will want to bring the MTX either into the game or not and in what form we'll decide to bring it into," he said. Post still predicts EA will relaunch micro-transactions for the "Star Wars" game. "Battlefront 2 MTX likely to return next year," he wrote. "Perhaps the biggest stock negative from the BF2 MTX issues is the potential negative impact on FY19 MTX revenues … That said, even with 12mn in total units sold and an average of $10 of MTX per game sold, BF2 could still do over $100mn in MTX." Here are the different ways the analyst suggested EA can add in-gaming purchasing back into the title: "Focus MTX on cosmetics … we see some room for skins such as light saber and blaster coloration, vehicles appearance modifications, and potentially hero costumes from different scenes/events in the movies." "Supporting heroes to unlock/purchase. Locking iconic heroes like Darth Vader and Luke Skywalker upset the player base, but rolling out new supporting heroes from the comics/movies would likely see less pushback. Also, players may be more open to purchasing via MTX vs grinding additional currency later in the game lifecycle." "Integrate a visible collectable. Other games have created visible (but subtle) collectible items available with achievements, currency, or MTX (i.e. virtual companions/pets)." "Single player downloadable content. EA could introduce expansions to the single player campaign, driving additional player spend without fragmenting the multiplayer universe." EA's stock is up 34 percent year to date through Friday compared with the S&P 500's 18 percent gain. The company declined to comment on this story.

EA's 'Star Wars' gamer outrage raises questions over microtransactions:

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