EVE Omega Price Analysis 07-Oct-2022

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John B Mason
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EVE Omega Price Analysis 07-Oct-2022

Post by John B Mason »

Not sure if this is the right location of the topic, but I guess it can be moved at a later date.

Saw that CCP created some nice discounts for 3m+ Omega packs and I decided to do a little bit of analysis. For this, I just calculated the Net Present Value (NPV), which basically calculates the (*shocking*) present value of a future cashflow. The NPV is calculated as the `Cashflow/(1-i)^t` where i is the discount rate and t is the number of periods.

Now, the discount rate is a tricky business, but to keep it simple, I took the 12m average inflation rate in the US (8.3%) plus a 2% extra to cover for the risk of our money being better invested somewhere else (considering this is a video game, the money can always be invested in something better with actual future return, but this is a different discussion). After getting the final number (10.3%), we divide everything by 12 to get the monthly discount rate, as we also have monthly payments for EVE.

Now, with this little boring introduction, here are some numbers:
-------
3MPrice47.98
3MStandardCashflow19.9919.9919.99
3MNPV$58.96
3MCCPDiscountedCashflow15.9915.9915.99
3MNPV$47.16
3MPay-per-Monthloss-$11.80-24.59%
-------
6MPrice86.95
6MStandardCashflow19.9919.9919.9919.9919.9919.99
6MNPV$116.42
6MCCPDiscountedCashflow14.4914.4914.4914.4914.4914.49
6MNPV$84.39
6MPay-per-Monthloss-$32.03-36.84%
-------
12MPrice149.9
12MStandardCashflow19.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.99
12MNPV$227.02
12MCCPDiscountedCashflow12.4912.4912.4912.4912.4912.4912.4912.4912.4912.4912.4912.49
12MNPV$141.84
12MPay-per-Monthloss-$85.17-56.82%
-------
24MPrice270.99
24MStandardCashflow19.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.9919.99
24MNPV$431.90
24MCCPDiscountedCashflow11.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.2911.29
24MNPV$243.93
24MPay-per-Monthloss-$187.97-69.36%
-------
Considering that they advertised...

1-month: Full price

3-month: 20% off the full monthly cost of Omega

6-month: 30% off the full monthly cost of Omega

12-month: 40% off the full monthly cost of Omega

24-month: 45% off the full monthly cost of Omega

...comparing these numbers with Pay-per-Month loss and considering current avg inflation rate, we actually get way much bigger decreases.

Don't really know if this is something that would actually help anyone in taking a decision or not, just thought it can be interesting (at least for me) to calculate.

BTW, this is kind of how I make my long-term buying decisions as well. If anyone would be interested learning more about NPV, you can reach me on Discord or go to https://www.investopedia.com/terms/n/npv.asp.

PS: feel free to challenge whatever I wrote above, I might be wrong or not take some parameter in consideration.
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Boran Lordsworth
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Re: EVE Omega Price Analysis 07-Oct-2022

Post by Boran Lordsworth »

I do cashflow valuation for a living and I think, you have a couple of things wrong. So let me try to poke a couple of holes in your logic:

So first of all lets take the 24M option as an example. Cashflow for that package is basically pay for 24 months in advance. So your cashflow will be -270.99 now and no further cashflows for 24 months. Since the cashflow is happening now there is nothing to discount there and the NPV of that cashflow will always be -270.99.

Compare that with the monthly payment which gives you a monthly payment of 19.99. Now lets assume that you can invest money risk-free for 2% profit. NPV basically tells you how much money you have invest at 2% yield for each of the payments in the future. For a 24 month period that turns out to be:

-19,99 -19,95703933 -19,924133 -19,89128093 -19,85848303 -19,82573921 -19,79304938 -19,76041345 -19,72783134 -19,69530294 -19,66282818 -19,63040697 -19,59803922 -19,56572483 -19,53346373 -19,50125582 -19,46910101 -19,43699923 -19,40495038 -19,37295437 -19,34101112 -19,30912053 -19,27728253 -19,24549703

In sum that is a NPV of those cashflows of 470.77.

So in fact NPV calculations make the 24M option slightly less attractive than using the undiscounted cashflows 42.44% savings instead of 43.52% (Basically when using the 24M option you could have done something profitable with the 270.99 that you don't have any more because you pay them now)

I am not sure why you are including inflation effects in your discount factor since it does not have an effect on the cashflows we use. You should only include inflation rate in your discount factor ifmodel rising prices for the monthly option within the 24-month period.


Here the complete cashflow table at 2% discount for a 24 month period:
SAVINGS% NPV 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Monthly 479,76 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99 19,99
NPV monthly 470,77 19,99 19,96 19,92 19,89 19,86 19,83 19,79 19,76 19,73 19,70 19,66 19,63 19,60 19,57 19,53 19,50 19,47 19,44 19,40 19,37 19,34 19,31 19,28 19,25
20,00% 3M 383,84 47,98 47,98 47,98 47,98 47,98 47,98 47,98 47,98
19,86% NPV 3M 377,27 47,98 0,00 0,00 47,74 0,00 0,00 47,51 0,00 0,00 47,27 0,00 0,00 47,04 0,00 0,00 46,81 0,00 0,00 46,58 0,00 0,00 46,35 0,00 0,00
27,50% 6M 347,80 86,95 86,95 86,95 86,95
27,20% NPV 6M 342,69 86,95 0,00 0,00 0,00 0,00 0,00 86,09 0,00 0,00 0,00 0,00 0,00 85,25 0,00 0,00 0,00 0,00 0,00 84,41 0,00 0,00 0,00 0,00 0,00
37,51% 12M 299,80 149,90 149,90
36,94% NPV 12M 296,86 149,90 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 146,96 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
43,52% 24M 270,99 270,99
42,43% NPV 24M 270,99 270,99
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