EA's day of reckoning is here after 'Star Wars' game uproar, $3 billion in stock value wiped out

Electronic Arts' shareholders are running for the hills this month and for good reason.

The company's profitable business model is now at risk after angry gamers revolted over its aggressive in-game moneymaking strategy in "Star Wars Battlefront II."

EA's stock is down 8.5 percent month to date through Tuesday compared with the S&P 500's 2 percent gain, wiping out $3.1 billion of shareholder value. Its competitors Take-Two and Activision Blizzard shares are up 5 percent and 0.7 percent respectively during the same time period.

After EA gave a December quarter sales forecast slightly below Wall Street estimates on Oct. 31, some analysts suspected it was due to the "Stars Wars" title. The shares fell 4 percent the following day.

Then an uproar began after details about the game's character progression were revealed, a system so tedious players are resorting to rubber bands on controllers to acquire credits to level up.

The gaming community flooded social media and Reddit with thousands of negative posts, saying EA is unfairly compelling consumers to spend more money through micro-transactions for content that should be part of the initial $60 game price.

The controversy seems to be hurting the sales of the game, which was officially released on Nov. 17.

First week U.K. physical game sales of "Star Wars Battlefront II" declined 61 percent compared with "Star Wars Battlefront" from two years ago, according to GfK ChartTrack data. And the game is still not on the top 100 list of Amazon's best-selling video games year to date as of Tuesday.

One Wall Street analyst is also not impressed from his checks during the recent crucial holiday weekend.

"We were underwhelmed by sell-through for Star Wars: Battlefront II (EA) over the Black Friday weekend, which follows a controversial launch for the game," Stifel analyst Drew Crum wrote in a note to clients Sunday.

The game's weak sales are a secondary issue for Electronic Arts. The viability of its profitable micro-transaction strategy is now in question going forward.

Politicians vowed to take action to protect underage kids from the game's monetization practices. One Wall Street analyst is even calling for the industry to self-regulate before the government gets involved.

"Battlefront II is the pointy tip of the iceberg. … The biggest recent controversy has centered around EA's Star Wars Battlefront II, where early evidence suggests player anger over a mishandled loot box economy may in fact be impacting initial sales," Cowen's Doug Creutz wrote in a note to clients Monday. "We think the time has come for the industry to collectively establish a set of standards for MTX implementation, both to repair damaged player perceptions and avoid the threat of regulation."

However, with the increasing spotlight from the media and gaming community on the issue, Electronic Arts will likely be forced to dial back its extreme monetization strategies across its franchises, hurting future profitability.

EA chief financial officer Blake Jorgensen told investors in February its "Ultimate Team" sports micro-transactions business generated $800 million in high-profit margin sales for the company during the previous year. He added EA intended to extend a "similar mechanic" to its other franchises such as "Battlefield" and "Battlefront."

Now that whole strategy is at risk.

Leading gaming YouTube personalities believe EA will be forced to change its practices after the "Star Wars Battlefront II" micro-transaction controversy.

"After the communal and political backlash EA received over Battlefront II, the industry at large is going to have to walk back its loot box plans a little," Jim Sterling wrote in an email.

Joe Vargas of the AngryJoeShow, who has 2.8 million subscribers for his channel, agreed EA will be forced to permanently change its ways.

"I think gamers have drawn a line in the sand at pay to win loot boxes being tied directly to player progression in Triple AAA games. If EA continues that exact type of practice that was initially in Battlefront II then yes I'm sure it would backfire once again," he wrote in an email. "I don't think they will ever completely remove their loot box systems … instead the best course of action would be to keep it to cosmetic and bonus pieces for only the games where it makes sense instead of this recently insulting shotgun cash grab approach of stuffing ALL their major titles with it. The market will only handle so much."

Electronic Arts shares are still up 39 percent year to date through Tuesday in anticipation of future profits stream from micro-transactions.

Investors are likely to get disappointed under the new industry environment.

Click to show more