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

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According to the August NPD report, the next generation consoles are still in strong demand among gamers. Sony’s next generation console PlayStation 4 outperformed Microsoft’s (NASDAQ:MSFT) Xbox One for almost every top 10 titles in August. However, Xbox One sales nearly doubled in August in the U.S. as compared to July sales, driven by strong demand for the Madden NFL bundle. Microsoft is optimistic with the strong demand for Xbox One ahead of popular game launches such as Destiny , Grand Theft Auto V and Call of Duty: Advanced Warfare. ((August 2014 NPD))

Physical sales grew tremendously yet again, with strong hardware sales offsetting the declining software title sales. Gamers spent $561.3 million on physical hardware and software in the U.S., up 8% year over year. Hardware sales were up 116% year over year, with the figure reaching $192.6 million in the U.S, whereas the software sales were still disappointing with a 21% year-over-year decline to $231.6 million.

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

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See Our Complete Analysis for These Companies Here

GameStop

GameStop (NYSE:GME) is reaping significant profits from strong console sales as it 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. (see Growth Potential In Mobile, Digital And Technology Brands To Keep GameStop Healthy) However, lagging software sales are somewhat affecting the company’s net revenues. The company has a positive outlook for its physical software sales in the next two quarters, ahead of some dominant title releases such as Call of Duty: Advanced Warfare and FIFA 15. Activision’s Destiny and Electronic Arts’ Madden NFL 15 are off to an excellent start in terms of initial sales.

GameStop’s stock traded between the range $43-$45 last week. Our price estimate for the company’s stock is $47 (market cap of $5.4 billion), which is 7% above the current market price (market cap of $5.1 billion). For 2014, we expect GameStop to report revenue of around $9.5 billion for 2014 and non-GAAP diluted EPS of $3.10. The market consensus for EPS is $3.03 (Reuters).

See our complete analysis of GameStop

Electronic Arts

Electronic Arts (NASDAQ:EA) is off to a great start for its fiscal year 2015 with a 57% year-over-year increase in non-GAAP net revenues. EA’s Madden NFL 15 released in the last week of August and still managed to top the charts with the most units sold in the month. (Ref: 1) The company has yet to release its second annual sports franchise: FIFA 15, which is estimated to report record sales this year. Strong console sales might provide further boost to the company’s title sales.

EA’s stock traded close to $37 last week. Our price estimate for the company’s stock is $36 (market cap of $11.3 billion), which is 5% below the market price (market cap of $11.9 billion). For the year 2015, we expect the company to report revenue of $4.59 billion and non-GAAP diluted EPS of $1.95. The market consensus for EPS is $1.92 (Reuters).

See our complete analysis of Electronic Arts stock here

Activision

Activision Blizzard (NASDAQ: ATVI) released its much awaited First Player Shooter (FPS) title Destiny on September 9. The title crossed $500 million in sales on its first day, making it the biggest new video game. [1] In November, the company will release its new edition of Call of Duty franchise, which is anticipated to be a great hit among core gamers.

Activision’s stock traded close to $23.80 last week. Our price estimate for Activision is $21.64 (market cap of $16.1 billion), which is 8% below the market price. For the year 2014, we expect the company to report revenue of around $4.7 billion.

See our complete analysis of Activision’s stock here

Notes:
  1. Destiny crosses $500 million on day one []