Categories Analysis, Markets

Gaming stocks: A look at the three major players

Three major gaming companies – Electronic Arts (EA), Activision Blizzard (ATVI) and Take-Two Interactive Software (TTWO) reported their earnings this month. Let’s take a look at how these stocks are doing.

Activision Blizzard

Activision missed revenue and earnings expectations for its fourth quarter of 2018 and lowered its guidance for 2019. The company failed to meet its reach, engagement and player investment targets in 2018 and believes it will need significant change to meet its long-term goals in 2019.

The company also said it was laying off 8% of its workforce i.e. nearly 800 employees, as it undergoes a restructuring to deal with constant changes in the gaming sector. Activision plans to invest more in its larger game titles like Call of Duty and World of Warcraft and prioritize them over the smaller ones. The company plans to increase its development resources for its major franchises by 20% this year.

Activision’s disclosures have raised concerns among several analysts who have lowered their price targets on the stock to $45. The company’s statement that it does not expect in-game monetization, a key metric for growth, to improve much in 2019 was not received well.

Add to this the fact that Activision is facing tough competition from Fortnite and that it neither has a worthy opponent to Fortnite nor has it planned any key game launches for 2019 and you get a very grim picture. This has led a few analysts to express caution over the stock.

However, not everyone is pessimistic. Some analysts have justified the restructuring and believe they are necessary to adapt to the changing environment. They believe that Activision’s decision to focus on esports is a good one as the space has significant growth potential.

The company’s move to sell Destiny back to Bungie is also being viewed positively by some who believe it will allow the gaming giant to allot more development resources to its key franchises. All in all, one can expect quite a number of changes from Activision in 2019. The stock was up 2.6% in afternoon trade on Thursday.

Related: Activision Blizzard Q4 2018 Earnings Announcement

Electronic Arts

Electronic Arts suffered its biggest stock crash in over a decade after missing earnings estimates for the third quarter of 2019. Shares dropped 16% following the results announcement. The company said in its call that its performance did not meet expectations due to competitive challenges and that it expected these challenges to continue in the fourth quarter as well. Electronic Arts also lowered its revenue guidance for full-year 2019.

Electronic Arts said that although its business is profitable, growth in the mobile market is unpredictable as there are only a small number of highly successful games. The company expects net bookings to grow low single digits and underlying profitability to grow in line with that.

Despite these challenges, analysts are bullish on the stock and the reason for this is Apex Legends. While Fortnite has been giving everybody else nightmares, analysts believe that Electronic Arts has found a good solution for itself in this matter. Apex Legends gained 10 million players in just three days and over 25 million in a week, sending the stock on a rally and making up for most of its losses on earnings day.

Electronic Arts also has a large slate of games coming by 2020. Several analyst firms have upgraded the stock to a Buy rating and increased their price targets as high as $110. Shares were up 2.7% in afternoon trade.

Related: Electronic Arts Q3 2019 Earnings Announcement

Take-Two Interactive Software

Take-Two Interactive Software beat earnings estimates for its third quarter of 2019 but the stock was dragged down due to a weak outlook.

During the quarter, net bookings benefited from titles such as Red Dead Redemption 2, Grand Theft Auto Online and Dragon City. However, the fact that Red Dead Redemption 2 has only 23 million players has raised concerns on its ability to keep users engaged and the prospects of monetization. This led BMO Capital to downgrade the stock to Sell.

Related: Take-Two Q3 2019 Earnings Announcement

Despite this turn of events, a number of other analysts remain bullish on the stock and one of the reasons is the company has enough cash to develop new games. Most of the analysts have rated the stock Buy and given it a price target of $130. The stock was up 1.3% in afternoon trade.


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