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

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With the onset of the holiday season, the gaming industry is witnessing an increasing interest of gamers in the new titles. However, the increased demand for software titles is still not enough to beat last year’s excellent software sale figures. According to the NPD November report, the gaming industry sales figure for the month of November was $2.41 billion, down 11% year-over-year (y-o-y). As per the seasonal trend, the industry usually witnesses an exponential increase in software and hardware sales in the month of November. However, this year software sales reached $1.09 billion, down 1% y-o-y, primarily due to the tremendous success of the Grand Theft Auto franchise last year. The highlight of the report was the decline in the hardware sales figure, which was $1.10 billion, down 23% y-o-y. [1] This could be due to the release of Xbox One and Sony’s PlayStation 4 in November 2013. The initial demand for the new console cycle is usually high and it settles  down gradually. The important fact is that the console demand is still up month-over-month.

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

GameStop

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GameStop (NYSE:GME), the video game retailer, reported unimpressive results in its Q3 fiscal report last month. The company reported a 0.7% y-o-y decline in net revenues and a 2.3% y-o-y decline in comparable store sales. [2] The company’s hardware sales grew 147% y-o-y to $450 million due to strong console performance in the U.S. However, the positive impact of strong new hardware sales was offset by a delay in the release of Assassin’s Creed out of the third quarter into the fourth quarter. The decline in the sales of software titles for previous generation consoles, due to the shift of gamers to next generation consoles, was much more than the company’s anticipation. Moreover, GameStop is witnessing improved performance by its technology brands, which increased by 55 in number in the third quarter.

GameStop’s stock has not yet recovered from its drop just after the earnings release from $44 to $38, and traded between the range $32 to $34 during the last week. Our price estimate for the company’s stock is $43, implying a market cap of $4.8 billion, which is more than 20% above the current market price. We are factoring in changes in our model for the company and will update it shortly.

See our complete analysis of GameStop

Electronic Arts

Electronic Arts‘ (NASDAQ:EA) sports titles maintained their dominance in the respective targeted regions. Madden NFL 15 maintains its #4 spot in the top 10 games played in the U.S. during the month of November, whereas FIFA 15, despite being down 21% in sales week-over-week, during the second week of December, holds the #1 spot among the top selling retail games in the U.K. [3] The entire industry awaits the response of core gamers, as historically,  industry-wide software sales rise during the holiday season. On the other hand, Electronic Arts announced the release of the new digital expansion, Shadow of Revan, for its Star Wars franchise on December 9. [4]

EA’s stock rose from $45 to $47 during the last week. Our price estimate for the company’s stock is $39. implying market cap of $12 billion, which is nearly 20% below the market price.

See our complete analysis of Electronic Arts stock here

Activision Blizzard

Activision Blizzard’s (NASDAQ: ATVI) Call of Duty: Advanced Warfare still remains the most popular game in the U.S., whereas the company reported an increase in the number of subscribers for World of Warcraft (WOW). By the end of the September quarter, the subscriber base improved from 6.8 million in June to 7.4 million, with more than 1.5 million pre-orders for the fifth expansion pack ‘Warlords of Draenor,’ which was released on November 13, 2014. The fifth expansion pack is priced more than its previous versions; the digital and physical standard edition is available for $50 and the digital deluxe edition is available for $70.  Within 24 hours of its availability, more than 3.3 million copies were sold, and its subscriber base crossed 10 million. [5]. The company is confident of its title sales in this holiday quarter, with strong contribution from its first person shooter (FPS) titles.

Activision’s stock traded between $19 and $20 during the last week. Our price estimate for Activision is $22, which is roughly 10% above the market price.

See our complete analysis of Activision’s stock here

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Notes:
  1. November NPD report []
  2. GameStop Q3 earnings call transcript []
  3. UK sales chart: FIFA 15 scores top spot []
  4. Star Wars: The old republic launches Shadow of Revan digital expansion today []
  5. World of Warcraft surpasses 10 million subscribers as Warlords of Draenor launch begins []