EA: The fun is about to end

It the process of writing my post about the Epic Games/Metro:Exodus mess, I came across this SeekingAlpha article on what the future holds for EA Games, and OMG is it ever a must-read.

EA needs to change its business model fundamentally. Its current model alienates players and makes EA more susceptible to competition. A significant source of profits, lootboxes, are being regulated away. Players are moving to mobile and free to play, where EA is weaker than its competitor Activision Blizzard. We believe that EA is currently heading towards another inflection point where players will start leaving en masse. EA could've already crossed the inflection point. Either way, things aren't looking good.

EA has a very tiny pipeline ahead, with Anthem and Respawn Entertainment's Titanfall 3 and Star Wars: Jedi Fallen Order being the only major non sports games EA is planning to launch. This is after releasing a bunch of old games that are not selling well. This is the perfect recipe for a massive revenue shortfall in 2019. This situation isn't helped by EA's terrible reputation, the upcoming lootbox bans, or increasing competition from developers around the world.

Although downside is reduced by the low valuation, we believe this valuation will look high when considering the secular decline in EA's revenues and profits. We believe EA will make a good short candidate if the market continues running up and brings EA up with it.

"Good short candidate" refers to the investment strategy of short-selling, essentially selling stock that you've only borrowed for just that purpose. It's basically a bet that the stock's value is about to drop; if it does, they you pocket the difference between what the stock was worth when you sold it, and what it was worth when you had to buy it back to "return" the shares that you'd "borrowed."

The quoted passage, BTW, is the conclusion from fifteen pages of analysis, all of which are worth reading if you're at all interested in the video game business. Seriously, go read the whole thing, because it's fascinating in a way that stock analysis normally isn't.

The various section titles in the article should give you some idea what to expect, though:

• Lootboxes: Regulation is coming
• Destroying franchises
• FIFA - How long can it last?
• Star Wars: An unmitigated disaster
• Battlefield V: Soldier up, EA!
• Competition: A quickly narrowing moat
• Dubious tactics: Denying valid refunds
• Significant insider selling
• Anthem: Not looking good

The "Star Wars" section features one of the most glorious EA Star Wars memes I've ever seen, too:

EA's Star Wars games in a nutshell.

Did I mention that this article was a great read? Seriously, go read the whole thing right now.