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

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Top video game developers, such as Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ: ATVI) have launched most of their core titles, as the gaming industry heads towards the most profitable period of the calendar year. Every year, the gaming companies look forward to the holiday season when the number of title sales increases manifold. On the other hand, video game retailers, such as GameStop (NYSE:GME) are reaping huge profits from the sustained hardware sales. In August, Sony’s next generation console PlayStation 4 outperformed Microsoft’s (NASDAQ:MSFT) Xbox One for almost every top 10 titles in August. Nonetheless, Microsoft is optimistic with the strong demand for Xbox One, as the new title launches, such as Destiny and FIFA 15 have taken the market by a storm. ((August 2014 NPD)) Here’s a quick round up of some companies related to the gaming industry covered by Trefis.

GameStop

GameStop (NYSE:GME) is the world’s largest retailer of video game and PC software with nearly $9 billion in revenues in 2013. Despite the declining trend of physical software sales in the video game industry, GameStop is likely to sustain growth due to its unique buy-sell-trade model. Moreover, 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. (See Growth Potential In Mobile, Digital And Technology Brands To Keep GameStop Healthy).  The company has a positive outlook for its physical software sales in the next two quarters. Activision’s Destiny and Electronic Arts’ Madden NFL 15 and FIFA 15 are off to an excellent start in terms of initial sales.

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GameStop’s stock has dropped from $41 to $38 over the last 7 days. Our price estimate for the company’s stock is $46 (market cap of $5.4 billion),which is 18% above the current market price (market cap of $5.1 billion). For 2014, we expect GameStop to report revenue of around $9.2 billion for 2014 and non-GAAP diluted EPS of $2.97. The market consensus for EPS 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. The company released its annual edition of the most popular football simulator franchise- FIFA 15– on September 23 in North America, September 25 in Europe and September 27 in the United Kingdom. According to Gfk Chart-track, the number of FIFA 15 units sold in the first week is almost same as the number of FIFA 14 units sold. However, FIFA 15’s higher price range (Price of £54.99 in the U.K and $60-$70 in the U.S.), compared to that of FIFA 14, led to a 6% jump in FIFA 15’s first week revenues. For the second week, the title retained its top 1 spot in the U.K., despite tough competition from 3 new titles. [1]

EA’s stock traded between the range $34.50 to $36 last week. Our price estimate for the company’s stock is $36 (market cap of $11.3 billion), which is 3% above the market price (market cap of $10.9 billion). For the year 2015, we expect the company to report revenue of $4.5 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

In the last one month, Activision Blizzard (NASDAQ: ATVI) released two of its three most awaited titles: Destiny and Skylanders: Trap Team. Destiny crossed $500 million in sales on its first day, making it the biggest new video game. [2] Moreover, Skylanders’ new edition is helping the company generate higher revenues due to add-on accessories required to play this game. However, the company is yet to release another major title Call of Duty (COD): Advanced Warfare later this year.

Activision’s stock traded dropped down to its four month low of $20 in the last week. Our price estimate for Activision is $21.64 (market cap of $16.1 billion), which is 8% above 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

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Notes:
  1. FIFA 15 does the double []
  2. Destiny crosses $500 million on day one []