Electronic Arts (NASDAQ:EA) (NASDAQ:EA) releases their battle royale game, Apex Legends, on February 4, sending their stock soaring by almost 30%. This dramatic price change was due mostly to the vastly positive reception of the game and the popularity of Epic Games’ Fortnite, another battle royale game. However, the large spike in value might not have been justified and now the company is propped up on some false notions. EA will likely have trouble profiting off of the new free to play game as loot boxes are becoming increasingly criticized globally for their likeness to gambling. The battle royale genre, the genre Apex Legends is looking to capitalize on, has been declining recently and has already peaked, reducing the potential customer base. Apex Legends is not capable of generating the revenue many expect it to, and the stock is greatly overvalued as a result.
As a free to play game, Apex Legends makes its money off of loot boxes, known as Apex Packs within the game, where players can acquire different skins (for weapons and characters), dances, and fun one-liners. For a player to purchase an Apex Pack, they must first acquire a large amount of the in-game currency, Apex Coins, rewarded by leveling up and completing challenges. However, EA relies on players choosing to buy Apex Coins, motivated to do so with the hope of winning a specific item from their Apex Packs. By paying for the Apex Coins, the players are able to open more and more Apex Packs and increase their chances of obtaining what they want. For those that are skeptical that people may choose to pay for these loot boxes, take a look at Counter-Strike: Global Offencive and it’s incredibly lucrative skin market. Fortnite is another free to play battle royale game, and made $2.4 billion in 2018 alone, more than any other game ever. Fortnite follows a similar strategy as Apex, allowing players to purchase their in-game currency, V-bucks, to buy certain skins and dances. They also sell a Battle Pass that unlocks a certain set of skins and dances for a certain time period, usually lasting ten weeks. EA is expected to release their first Season Pass for Apex Legends soon which should be another large revenue source for the game.