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

The gaming industry witnessed a dull period over the last few months, as software sales under-performed. According to the NPD’s September report, revenue from software sales was down 36% y-o-y. Despite the decline, 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. ^[1] With the holiday season coming, Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ: ATVI) have unloaded their arsenal, as both the companies released their major titles, including Madden NFL 15, FIFA 15, Destiny and Skylanders Trap Team.

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

GameStop

GameStop (NYSE:GME) is scheduled to release its Q3 fiscal earnings report on November 20. The company, with its unique buy-sell-trade model, might witness revenue growth due to strong consoles demand over the last 6 months. The company reported triple-digit growth in hardware sales in its second quarter report, eventually leading to a 22% increase in comparable store sales year over year. With numerous blockbuster titles in the market, the company is confident of its software sales in the holiday quarter. Moreover, the company’s technology brands are generating significant amount of revenues, and hence the company plans on accelerating its expansion plans in this segment.

GameStop’s stock price increased from $39.65 to $42.5 in the last week. Our price estimate for the company’s stock is $42.88 (market cap of $4.8 billion),which is in line with the current market price. 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 second quarter earnings for the fiscal 2015 on October 28. The company reported a 17% year-over-year (y-o-y) increase in the net non-GAAP revenues. The company’s strong performance was led by the 3 major titles: Madden NFL 15, FIFA 15 and The Sims. Both the titles are among the top 10 games played by the gamers in the U.S. in the month of September. Moreover, EA has a strong lineup for the next calendar year with the return of Need For Speed, Mass Effect and StarWars.

EA’s stock price increased from $36 to $40 during the last week. Our price estimate for the company’s stock is $36 (market cap of $11.5 billion), which is 10% below the market price (market cap of $12.7 billion). For 2015, we expect the company to report revenues 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

Activision Blizzard (NASDAQ: ATVI) is scheduled to release its third fiscal quarter earnings on November 4. In the last one month, Activision 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, on November 4, the company is all set to release another major title Call of Duty (COD): Advanced Warfare, which might drive the company’s revenues even further. Call of Duty is the leader in First Player Shooter (FPS) genre and will be a huge boost to the company’s holiday quarter revenues.

Activision’s stock traded in the range between $19 and $20 during the last week. Our price estimate for Activision is $21.64 (market cap of $16.1 billion), which is 9% 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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1. September NPD report [↩]