Investing In EA: Potential Reward Outweighs The Risk

| About: Electronic Arts (EA)

Electronic Arts (ERTS) is on the verge of releasing potentially one of the best selling games of the year and possibly the decade. While there is no official release date set, Electronic Arts through its BioWare division has stated during their Q1 2012 Conference Call that it's targeting the 2011 holiday season to release its upcoming massively multiplayer online role playing game [MMORPG] Star Wars: The Old Republic.

Like Activision’s (NASDAQ:ATVI) World of Warcraft, this MMORPG will require the initial purchase of the game as well as a recurring monthly fee to continue playing. If the game is popular and can keep a healthy subscription base, this can translate into significant revenue generation for Electronic Arts which in turn can reward EA shareholders.

The MMORPG space is a crowded one with numerous companies both small and large competing to put out a quality product that enough people are willing to keep paying for month after month. The risk at investing at this stage of the game (pun intended) is that no one knows if the game will thrive or flop. Every investor knows that nothing is guaranteed, but there are some pretty compelling arguments that SWTOR can reach blockbuster status and keep a loyal customer player base paying playing for years.

Record Breaking Pre Order Sales

EA began taking pre-orders for SWTOR on July 21. As of September 17th, the total number of copies that have been pre-ordered stands at 463,121. In the first 5 days since pre-ordering was announced, SWTOR broke EA’s previous record set by Battlefront 3 for the most number of pre-orders.

Different versions of the game were available for pre-order: a standard edition ($60.00), a digital deluxe edition ($80.00), and a collector’s edition ($150.00) . Doing some quick math, (463,121 * $60) we see that EA will earn at least $27,787,260 in revenue from SWTOR pre-order sales. That number assumes that only the $60 standard edition was sold.

According to the SWTOR pre-order page, the collector’s edition has been sold out and we don’t know how many deluxe editions of the game have been sold. Assuming a formula of 70% standard edition, 20% deluxe edition, and 10% collector’s edition, this figure increases to $33,807,833.

An Estimated 3 Million Units Will Sell

As a result of these strong pre-order figures, analyst group Cowen and Company estimated that SWTOR will sell 3 million copies its first year, and retain 2 million subscribers during this same period. These figures are up from their original estimate of 1.5 million copies sold the first year and a retention of 1 million subscribers.

Applying the same 70, 20, 10 formula to 3 million, we get a yearly revenue figure of $219,000,000. Along with that, 2 million subscribers at an average rate of $12.50 a month will bring in $25,000,000 each month.

Recurring Subscriptions is the Key

When 'Star Wars the Old Republic' launches, it will bring a significant amount of revenue to Electronic Arts. As pre-order sales indicate, the game has already piqued the interest of gamers and has the potential to keep them as paying customers month after month. BioWare is counting on its deep storytelling to make its game highly immersive and may contend with World of Warcraft for the world’s most popular MMO video game.

The key for EA is to maintain subscribers in the subsequent months after release. Activision/Blizzard has mastered the ability to keep dangling the carrot in front of its customers to keep them coming back month after month. EA is very aware of this. EA CFO Eric Brown has stated that EA has followed the World of Warcraft lifecycle very carefully and has paid close attention to what has worked and what hasn’t in terms of keeping the game fresh and interesting for itsplayers.


Preorder sales as well as analyst predictions indicate that SWTOR will be a successful game for Electronic Arts, at least in the first year after it is released. During this first year, if EA reports a significant revenue increase, that could translate into a significant gain in its stock’s share price. Granted, there are no guarantees, but at this point, it appears that the reward outweighs the risk.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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