The COVID-19 pandemic, which coincides with a new generation of game consoles, has pushed the video game industry into a new stratosphere, and investors are about to see the results and the path to a sequel. to spend time sheltered in place, as more consumers with a lot of free time joined their ranks. Meanwhile, a new generation of gaming-related companies entered the market with initial public offerings and direct listings.
In 2020, global video game sales increased 25% to $ 191.12 billion, according to Lewis Ward, director of games research at IDC. Those figures include PC games, console hardware and software, and direct spending on mobile games, while excluding ad revenue on gaming and aftermarket gaming accessories. To underscore the COVID-19 effect on that figure, Ward expects sales to grow modestly to $ 195.29 billion in 2021 and $ 195.8 billion in 2022. For more: Video games are a bigger industry than North American movies and sports combined, thanks to the Activision Blizzard pandemic. Inc. ATVI, -0.04% will kick off a parade of video game companies earnings this week, and analysts are expecting a strong performance across the industry in the latest quarter compared to pre-pandemic results. From there, publishers will find increasingly difficult comparisons to previous quarters, as video games flourished under stay-at-home orders that began en masse in March 2020, and Microsoft Corp. MSFT, -0.13% and Sony Corp. SONY, -0.79% released the expected next-generation game consoles by the end of the year. That puts the company’s outlook even further under scrutiny as investors look for clues whether COVID-19 was the main driver of the results or whether the pandemic simply accelerated long-term momentum for the industry. Activision Activision reports Tuesday, and is generally a favorite with analysts given the wide breadth of the company’s reach in the multitude of current video game markets exemplified by the “Call of Duty” franchise. Not only does “Call of Duty” serve the traditional console and PC market with the titles “Black Ops – Cold War” and “Modern Warfare,” but the franchise has a free “Warzone” battle royale option similar to Epic Games. . “Fortnite”, with all those options available on mobile platforms. See also: What to expect from Apple v. Epic, a lawsuit that could change antitrust law and the mobile app ecosystem Activision said it expects adjusted earnings of 84 cents a share on revenue of $ 2.02 billion for the first quarter. Analysts surveyed by FactSet expect adjusted earnings of 70 cents a share given a broad interpretation of how Wall Street views the company’s quarterly results. Additionally, analysts surveyed by FactSet estimate a consensus of bookings, rather than sales, at about $ 1.8 billion for the quarter, based on Activision’s forecast of $ 1.75 billion. The Street expects GAAP earnings of 67 cents a share, compared to the company’s outlook of 59 cents a share. In late March, the company appointed Armin Zerza as CFO, to succeed retired Dennis Durkin, and said it hoped to “outperform [its] prior outlook for the first quarter. “JP Morgan analyst Alexia Quadrani, who is rated overweight by Activision, expects” further engagement sustained during the first quarter of ‘Call of Duty’, with the game notably maintaining its YTD participation alongside ‘Fortnite’. “Limited organic growth in 2021, we believe this year’s stock performance will be driven by top franchise execution and investor enthusiasm for the new portfolio of games, factors we believe that favor Activision more as the company has significant long-term opportunities that we do not consider to be fully reflected in current estimates, “Quadrani said of the industry as a whole. Activision also publishes the” World of Warcraft “franchise under its Blizzard brand. , along with his franchises “Overwatch” and “Diablo”, and “Candy Crush” under his King brand. MKM Partners analyst Eric Handler, that you After a purchase in the stock, wait for an earnings report from Activision. “We continue to like Activision’s approach to expanding its major franchises across more platforms, which should provide a solid track for growth in the years to come,” Handler said. Jefferies analyst Alex Giaimo, who has a buy rating from Activision, said the biggest question on investors’ minds is “how to think about the 2021 financial trajectory given the continued momentum within the video game space.” “What’s important to realize here is that much of ATVI’s strength has been driven by significantly improved internal execution, rather than just the shelter-at-home lifting,” Giaimo said. “From an industry point of view, there are still multiple tailwinds that should help keep momentum high in 2021 (and maybe considerably more).” 12 months Earning% 52-week maximum discount% Earning date Activision 43.1 12.8 May 4 Zynga 43.5 12.2 May 5 Electronic Arts 24.4 5.5 May 11 Take-Two 44.9 18.4 May 18 iShares Software ETF IGV, -1.53% 50.1 7.2 – Nasdaq Composite COMP, -0.48% 57.1 1.8 – S&P 500 SPX Index, + 0.27% 43.6 0.9 – Electronic Arts The second of the 3 largest US video game publishers. Reporting is Electronic Arts Inc. EA, down -0.63% on May 11. EA, known for its sports games like “FIFA 21” and “Madden NFL 21”, as well as action titles like “Apex Legends”, just closed its acquisition of Glu Mobile Inc. for $ 2.4 billion, after finalizing its acquisition of Codemasters Group Holdings PLC for $ 1.2 billion in February. Analysts expect adjusted earnings of $ 1.05 per share on revenue of $ 1.39 billion, based on EA’s forecast of an unadjusted loss of approximately 7 cents per share, which includes a tax accounting charge of 52 cents per share, on income. of $ 1.17 billion. . MKM’s Handler, which has a buy rating from EA, said the company’s acquisitions have already boosted expectations for 2022. “We see EA as the most attractive name in our universe of gaming coverage for the next 12 months, “Handler said, taking into account both acquisitions. JP Morgan’s Quadrani cautioned that social media activity, a metric closely followed by analysts to gauge player engagement, has slowed for “FIFA,” but that “Apex Legends” “continues to trend well.” . Quadrani has a neutral rating on EA.Take-Two Take-Two Interactive Software Inc. TTWO, -2.90% is scheduled to report on May 18. The company is known for its “NBA2K” and “Borderlands” franchises along with “Grand Theft.” Auto ”and“ Red Dead Redemption ”under their Rockstar Games label. After Take-Two turned over its bid for Codemasters to EA, it committed to developing its 2K and Rockstar divisions, as well as considering future acquisitions “very, very selectively.” See also: This violent video game has made more money than any movie Analysts, on average, expect GAAP earnings of 93 cents per share on revenue of $ 746 million, compared to Take-Two’s forecast of 88 cents to 98 cents per action on revenue of $ 702 million to $ 752 million for the fourth quarter. MKM’s Handler, which is rated neutral on Take-Two, said he believes “stocks are at or near a bottom, but the upside is a big question mark.” Handler said the most important thing for Take-Two, which is reporting its fiscal fourth quarter, is its fiscal outlook for 2022, and that will determine the direction of the stock. “The lack of visibility of the FY22 incremental game releases is creating a challenge in assessing Take-Two’s growth potential,” said Handler. “It is unlikely that the ‘GTA V’ remaster announced for next-gen consoles and the release of ‘GTA Online’ will be able to make up for the overall ‘GTA’ franchise comparisons, which are very challenging.” JP Morgan’s Quadrani, which is rated neutral, noted “strong social media activity for ‘GTA’ from September to date.” Zynga Zynga Inc. ZNGA, -1.76% is scheduled to report earnings on May 5, the day after Activision. Last quarter, Zynga posted record sales and bookings and is leveraging its presence in mobile games, which is the fastest growing segment of the video game industry. The company’s best games include “CSR Racing 2,” “Words With Friends,” “Zynga Poker,” “Empires & Puzzles,” and “Merge Dragons.” Read: Zynga’s new path includes Sal Catrini, Truist’s ‘Harry Potter’ and ‘Game of Thrones’ analyst, who has a buyout in Zynga, said he thinks sentiment is leaning positively towards action. “We believe the company could advance the full year on a commensurate basis and see the second quarter consensus as very reasonable,” Catrini said. Analysts are expecting adjusted first-quarter earnings of 9 cents a share on revenue of $ 640 million, based on Zynga’s forecast of $ 635 million. For the industry as a whole, Catrini believes he expects the results to be “in line with the future,” with the sector entering a “favorable seasonality” with positive fundamentals. “Roblox and the software makers Then there’s the harvest of companies. in the video game space that have recently entered public markets. Roblox Corp. RBLX, -4.65%, which went public on March 10, is scheduled to report on May 10. Analysts expect earnings of 13 cents a share on revenue of $ 572.6 million Unity Software Inc. U, -4.69%, which went public on September 18, is scheduled to report on May 11. Analysts forecast a loss of 12 cents a share on revenue of $ 217.1 million.Also scheduled for May 11 is Playtika Holding Corp. PLTK, -1.58%, which went public on January 15. Analysts expect earnings of 15 cents per share n on revenue of $ 580.2 million from Playtika. Applovin Corp. APP, + 3.53%, which went public on April 15, is scheduled to report on May 12. Analysts have yet to begin covering the stock.