EA stock is down 10% since Nov. 1, thanks to Internet outrage over its latest video game release. But that's a serious overcorrection, and it has made EA stock one of the best discounts this Cyber Monday.
A rash of negative headlines sounded a dire warning for Electronic Arts Inc. (Nasdaq: EA) after a controversy brewed over the latest "Star Wars" video game. Check out some of the overheated headlines we've been seeing...
"Wall Street is freaking out as EA caves again to social media outrage over its 'Star Wars' game," warned CNBC on Nov. 17.
"EA Has Turned into an Industry Punching Bag Again," wrote Forbes on Nov. 13.
"EA Bows to Reddit Complaints," scolds Fortune on Nov. 13.
Thankfully, you can safely ignore the hysteria.
Here's what's going on with the game - and why EA stock is actually today's best Cyber Monday deal out there...
What the EA Controversy Is All About
The EA controversy revolves around its latest "Star Wars Battlefront" video game.
In addition to the game's $60 price tag, EA was planning to charge players money within the game to access important characters and features. These "microtransactions" meant players would need to pay potentially hundreds of dollars to access all the game's features.
And gamers revolted...
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Fans flooded the online discussion forum Reddit with comments about boycotting the game. A response from an EA representative on Nov. 13 defending the transaction structure was met with nearly 400,000 "downvotes," becoming the most disliked comment in Reddit history.
EA then dispatched the game's developers to host a discussion about the game on Reddit, on Nov. 15, which racked up 28,861 comments as users flooded the forum with questions.
By Nov. 16, Electronic Arts announced it was suspending the game's in-game purchases to appease the fans.
That sent EA stock plunging 3% overnight, and it's down 10% over the whole month of November.
But even with the decline, the EA stock price is up 36% on the year, and the company remains a reliable buy, with 76% of Wall Street analysts giving the stock a "buy" or "overweight" rating.
In fact, the stock is heading even higher over the next year, which means the short-term fallout from "Star Wars" fans is giving you a 10% discount right now...
Why EA Stock Is Poised for 35% Gains in 12 Months
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There are three reasons I expect the EA stock to keep gaining, making the short-term controversy a discount buying opportunity.
First, EA announced they don't expect that the recent changes made to the game will impact the company's earnings.
EA disclosed in a Nov. 17 8-K filing with the SEC that "this change is not expected to have a material impact on EA's fiscal year 2018 financial guidance."
That's not surprising considering the franchise games EA produces, including the "Madden NFL" series, the "FIFA" soccer series, the "Battlefield" franchise, and upcoming releases like "UFC 3."
Even an underwhelming release from the "Star Wars" franchise won't do lasting financial harm to EA.
That's why Wall Street analysts are projecting revenue to grow 4.8% in 2018, according to Yahoo Finance.
Second, short-term controversies can translate into short-term drops in share prices. But stocks bounce back.
Just look at the controversy surrounding United Continental Holdings Inc. (NYSE: UAL) back in April.
On April 9, a man was forcefully removed from a United Airlines flight, and the video of his violent removal went viral. UAL stock dropped over 5% between April 10 and April 17 as the company dealt with the fallout, including statements and interviews with CEO Oscar Munoz.
But the controversy's hit on the stock didn't last.
Once the controversy fell out of the media's gaze, UAL stock rallied. UAL shares jumped 21% between April 17 and June 2, when the stock reached a 2017 high.
We expect a similar result for EA shares.
Third, Wall Street analysts are projecting EA stock will grow as much as 35% over the next 12 months.
Buckingham Research forecasts shares of EA will reach $143 over the next year, and the average price target of Wall Street analysts surveyed by FactSet comes in at $127.
That means Wall Street is still bullish on the stock, and buying in now gives investors a 10% discount over those who bought EA in October.
That's a Cyber Monday deal worth taking.
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