Monthly Update On Gaming Industry: Electronic Arts & Activision Blizzard

The U.S. gaming industry showed some signs of improvement in terms of hardware sales over the past 2 months. However, the overall hardware sales figure for the combined first 7 months of 2015 is down nearly 7% compared to that in same period last year. ^[1] On the other hand, the software sales for the first 7 months  in 2015 were 2% higher than that in the same period last year, despite the absence of any major title release. Gamers are actually spending more money on games, now that they are done buying the new console systems.

The People’s Bank of China cut its benchmark lending rate from 4.85% to 4.60%, the lowest in a decade. Further, policymakers decided to lower the reserve requirement ratio by 50bps for banks. These measures to facilitate monetary easing have been taken following the biggest stock market plunge in China since 1996 and a four week rise in money market rates as lenders hoard cash. As a result, the Dow Jones index fell nearly 10%, affecting most of the U.S. listed stocks.

Here are some updates related to some of the gaming companies covered by Trefis:

Electronic Arts

Electronic Arts reported excellent results in its June-ended quarter report, with non-GAAP revenues rising to $693 million, $53 million above the guidance. Apart from the company’s popular sports titles, other games, such as Battlefield Hardline and The Sims 4, helped the company in engaging more gamers around the world, effectively leading to more game-play hours and better revenue growth. ^[2] The major takeaway from the earnings report was the increasing revenue contribution of the digital segment, indicating the shift of gamers’ interest to online gaming and downloadable content. ^[3]

With strong software sales growth this year, the company is confident of its newer editions of the sports titles. Additionally, the return of Need For Speed is attracting many racing game lovers, and the incremental revenues from this franchise will certainly boost the company’s revenue growth in the holiday season of 2015.

EA’s stock traded between $70 and $75 for the major part of August 2015, before dropping roughly 14% after the release of the Chinese interest rate news. Our price estimate for EA is $76, which is roughly 12% above the current market price.

Activision Blizzard

Activision Blizzard posted record Q2 revenues, driven by strong growth in the digital segment. The sustained momentum of the company’s core franchises, namely Call of Duty, Destiny, and Skylanders; as well as excellent user response to the new releases: Heroes of The Storm and Hearthstone, drove the non-GAAP revenues to $1.04 billion, up 8% year-over-year (y-o-y) ^[4]

Activision Blizzard is bringing back the most successful storyline in the Call of Duty history, with the launch of Call of Duty: Black Ops III in November 2015. The previous two editions of this series averaged around 29 million unit sales. (See: Activision might continue FPS domination with new Black Ops title) Being one of the highly anticipated games this year, the company reported that the number of Black Ops II monthly active users rose to over 11 million players.

ATVI’s stock rose from $25 to $28 during the first week of August and traded stably between $28 and $30 thereafter. The stock fell back to $26 on the outbreak of the Chinese interest rate cut news. However, it has regained its momentum and is currently trading back at $29. Our price estimate for ATVI is $29, roughly the same as the current market price.

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More Trefis Research

1. July 2015 NPD [↩]
2. Electronic Arts, Q2 2015, earnings call transcript [↩]
3. Digital segment leads Electronic Arts’ revenue growth in Q1 2016 [↩]
4. Activision’ stock up 12% on impressive digital growth in Q2 and positive guidance [↩]