Weekly Notes On Gaming Industry: Electronic Arts & Activision Blizzard

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ATVI: Activision Blizzard logo
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Activision Blizzard

After a fairly impressive holiday period by the U.S. gaming industry, all the top major game developers were positive ahead of their quarterly reports. According to the research group NPD, the gaming industry managed to overtake 2013’s sales figures, with impressive hardware sales offsetting the dull software sales in 2014. The industry generated $3.25 billion in December 2014, down from $3.28 billion in December 2013. However, the highlight of the last year was the strong demand for consoles during the entire year that managed to overshadow the lagging software sales. In December, gamers spent $1.31 billion on hardware, down nearly 4% year-over-year (y-o-y). However, the trend continued in the software segment, as the net software sales for December 2014 reached $1.25 billion, down 2% year-over-year. [1] The sustained demand for new consoles, Microsoft’s Xbox One and Sony’s PlayStation 4, as well as core title releases in the last few months, resulted in a fairly strong holiday quarter in 2014. As a result, for the entire calendar year of 2014, gamers spent roughly $5.1 billion on physical hardware for video games, up more than 18% y-o-y, offsetting software sales, which were nearly $5.3 billion, down 13% y-o-y. As a result, the total revenue for the industry in the U.S. was up 1% y-o-y in 2014.

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

Electronic Arts

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Electronic Arts (NASDAQ:EA) reported strong numbers in its Q3 earnings results, as the company reported non-GAAP net revenue of $1.43 billion, which was 12% above the guidance, but down 9% year-over-year (y-o-y). The company’s core sports titles: FIFA 15, Madden NFL 15, and Hockey Ultimate Team services recorded a massive 82% y-o-y growth. [2] Electronic Arts released 8 new titles in 2014, excluding FIFA and Madden NFL series, out of which four made it to the top 100 titles in 2014.  In 2015, EA will come up with Battlefield Hardline and Need For Speed title.

EA’s stock traded between $57 and $58 during the last week. Our price estimate for the company’s stock is $54, implying a market cap of $17 billion, which is 6% below the current market price.

See our complete analysis of Electronic Arts stock here

Activision Blizzard

Activision Blizzard (NASDAQ: ATVI) beat its non-GAAP EPS guidance by $0.06 in the fourth quarter of the fiscal 2014 year, as it reported its annual report on February 5. As a result the company managed to deliver record earnings per share of $1.42 for the whole year, up more than 50% from the previous year. For the fiscal 2014, non-GAAP digital revenues grew 40% y-o-y, accounting for 46% of the total revenues. The strong growth in the digital segment was spurred by increasing game downloads in consoles and in-game purchases from the first free-to-play game. In 2014, Activision’s results in all the geographical segments improved y-o-y, with nearly 39% growth in Asia-Pacific and 15% y-o-y growth in Europe. Activision’s shooter games Call of Duty Advanced Warfare and Destiny led the genre worldwide with excellent response from the gamers. On the other hand, Skylanders and World of Warcraft also contributed significantly to the revenue stream.

Activision’s stock traded in a small range of $23 and $23.60 during the last week. Our price estimate for Activision is $21, which is 10% below the current market price.

See our complete analysis of Activision’s stock here

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Notes:
  1. NPD December 2014 report []
  2. Electronic Arts Q3 2015 earnings call transcript []