Weekly Notes On Gaming Industry: Activision Blizzard, GameStop & Electronic Arts

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ATVI: Activision Blizzard logo
ATVI
Activision Blizzard

The gaming industry has started showing signs of revival as software sales gained momentum after the release of new editions of some of the most popular franchises. Top video game developers, such as Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ: ATVI) launched their most awaited title releases of the year. Electronic Arts, the dominant leader in sports genre, released Madden NFL 15 and FIFA 15 in the last two months. On the other hand, the FPS genre leader, Activision Blizzard launched Destiny and Skylanders: Trap Team; and is yet to release its blockbuster title: Call of Duty: Advanced Warfare in November. According to the September NPD report, Destiny, Madden NFL 15 and FIFA 15 topped the charts for the most title units sold in the month of September. In the U.S., gamers spent $1.1 billion on new physical games and consoles, up 2% year-over-year (y-o-y). The new generation consoles continued to maintain its momentum, as the hardware sales were $432.7 million in September, up 136% y-o-y and up nearly 100% compared to hardware sales in August. [1]

Although, revenue from software sales was down 36% y-o-y, it was twice the August software sales’ figure. This indicates the increasing consumer’s interest in video games, primarily driven by new AAA title launches. Moreover, in September 2013, the sales were high due to the mega release of Grand Theft Auto (GTA) V. According to the report, if the sales of GTA V are excluded, the software sales increased y-o-y in September 2014.

Here’s a quick round up of some companies related to the gaming industry covered by Trefis.

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GameStop

Major video game retail chains, such as GameStop (NYSE:GME) is most likely to benefit from the increasing demand of software titles and consoles. GameStop, with its unique buy-sell-trade model, might witness revenue growth in the coming few months. The company reported triple-digit growth in hardware sales in its latest second quarter report, eventually leading to a 22% increase in comparable store sales year over year. Moreover, September’s top seller Destiny performed better on both the new generation consoles: Microsoft’s (NASDAQ:MSFT) Xbox One and Sony’s PlayStation 4.

GameStop’s stock traded around the $38 mark for the first three days of the week, before rising up to $40 on Thursday. Our price estimate for the company’s stock is $42.65 (market cap of $4.8 billion),which is 8% above the current market price (market cap of $4.4 billion). For 2014, we expect GameStop to report revenue of around $9.15 billion for 2014 and GAAP diluted EPS of $2.81. The market consensus for EPS for year ending Jan-14 is $3.03 (Reuters).

See our complete analysis of GameStop

Electronic Arts

Electronic Arts (NASDAQ:EA) recently released its two major franchises: Madden NFL 15 and FIFA 15. Both the titles, along with The Sims 4 and NHL 15, are among the top 10 games played by the gamers in the U.S. in the month of September. Sony Corporation reported that Madden NFL 15, FIFA 15 and NHL 15 were played more on PlayStation consoles. For the second week, FIFA 15 retained its top 1 spot in the U.K., despite tough competition from 3 new titles. [2]

EA’s stock dropped from $34 to $32 during the last week. Our price estimate for the company’s stock is $36 (market cap of $11.5 billion), which is 12% above the market price (market cap of $10.2 billion). For the year 2015, we expect the company to report revenue of $4.5 billion and non-GAAP diluted EPS of $1.87. The market consensus for EPS is $1.92 (Reuters).

See our complete analysis of Electronic Arts stock here

Activision Blizzard

In the last one month, Activision Blizzard (NASDAQ: ATVI) released two of its three most awaited titles: Destiny and Skylanders: Trap Team. Destiny topped the charts in the month of September, with more units sold for Xbox consoles. Moreover, Skylanders’ new edition is helping the company generate higher revenues due to add-on accessories required to play this game. Diablo III also managed to grab a position in the top 10 titles chart. However, later this year, the company is yet to release another major title Call of Duty (COD): Advanced Warfare, which might drive the company’s revenues even further.

Activision’s stock traded in the range between $18 and $19 during the last week. Our price estimate for Activision is $21.64 (market cap of $16.1 billion), which is 14% above the market price. For the year 2014, we expect the company to report revenue of around $4.7 billion and non-GAAP diluted EPS of $1.23. The market consensus of EPS is $1.32.

See our complete analysis of Activision’s stock here

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Notes:
  1. September NPD report []
  2. FIFA 15 does the double []