eResearch | This past quarter, video game publishers including Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: EA), and Take-two Interactive Software (NASDAQ: TTWO), reported impressive quarterly revenue growth, supported by increased demand from consumers staying home during the pandemic.
The video game industry experienced high growth due to new innovative products and services, such as live-service games, subscription-based gaming platforms, and eSports offerings.
As a result, game publishers are recording record revenues and bookings, with most raising guidance for this year.
Activision
In Q2/2020, for the three months ended June 30, 2020, Activision reported Revenue of $1.93 billion versus S&P Capital IQ analysts’ consensus estimate of $1.70 billion, with an EPS of $0.75 versus consensus estimate of $0.59.
Activision grew revenues by 38% year-over-year, driven by increased demand for its core franchise games, which include Call of Duty from its Activision division, World of Warcraft from its Blizzard division, and Candy Crush from its King Mobile division.
Growth in the past quarter was primarily attributed to the Activision division, which increased revenue to $993 million, a 270% increase year-over-year, due to significant growth from its most profitable franchise, Call of Duty.
The Call of Duty franchise recently experienced a boost in growth due to the release of its live-service battle-royal style game called Warzone, which had over 75 million players since its launch earlier this year.
The King Mobile segment, which was acquired in 2015 for $5.8 billion, maintained the rank as the top-grossing franchise in U.S. mobile app stores with its popular Match-3 franchise called Candy Crush, which reported double digit growth in Monthly Active Users (“MAU”) this past quarter compared with the same quarter the previous year.
Activision’s Overwatch League and Call of Duty League, two global eSports organizations, recently announced a partnership with Sportradar, a leader in sports data analytics and integrity services, who is expected to protect the two leagues against betting-related corruption.
On the earnings call, Daniel Alegre, President and COO of Activision, stated,
“We continue to experience strong momentum in the business even as tailwinds from shelter in place moderate. During the quarter, we remained laser-focused on driving financial performance through our three strategic growth drivers of expanding audience reach, deepening engagement and increasing player investment.”
Activision’s stock is currently trading at $83.90 per share, a 3% decrease since the earnings announcement and a 67% increase in the past year.
Q3/2020 Guidance
- Revenue of $1.8 billion, including Net Deferrals of negative $150 million.
- Net Booking of $1.7 billion.
- EPS of $0.64, including Net Deferrals of $0.15.
FY/2020 Guidance (raised)
- Revenue of $7.3 billion, including Net Deferrals of $350 million.
- Net Booking of $7.6 billion, an increase of $725 million from guidance provided in May.
- EPS of $2.46, including Net Deferrals of $0.18.
Electronic Arts
In FQ1/2021, for the three months ended June 30, 2020, EA reported Revenue of $1.46 billion versus S&P Capital IQ analysts’ consensus estimate of $1.06 billion, with an EPS of $1.27 versus consensus estimate of $1.04..
EA reported a 21% increase in revenues year-over-year, attributed to the delivery of 30 new content updates for console and PC titles, including two major franchise expansions, and over 50 updates for mobile game franchises.
EA experienced a surge in demand for its live-service games Apex and Sims, as its live-service segment reached revenues of $1.1 billion, a 16% increase year-over-year, accounting for over 70% of EA’s total revenues.
EA’s sports division, EA SPORTS surged in demand with new and returning players, as its FIFA franchise and Madden NFL franchise both doubled in player acquisitions this quarter versus the previous year’s comparable quarter.
To compete against cloud gaming subscription platforms from Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT), EA recently launched EA Play, which for the price of $4.99 a month, allows users to access exclusive in-game challenges, member-only content, and free games including The Sims 4, Battlefield, Star Wars Battlefront, and many other popular titles.
Last year, EA announced a partnership with Valve, who owns the largest PC gaming network called Steam, to provide Valve’s Steam users access to EA’s games. This past quarter, EA launched 25 game titles on the Steam platform.
“We’ve seen tremendous growth over the last four months in our business and across the industry. At EA, we sit at the intersection of two fundamental secular trends that have become increasingly clear. First, social interactions in our world are moving from physical to digital. And second, the consumption of sports and entertainment is moving from linear to interactive.” said Andrew Wilson, CEO of EA, on the earnings call.
EA’s stock price is currently trading at $141.77 per share, a 2% increase since the earnings announcement and a 53% increase in the past year.
FQ2/2021 Guidance
- Revenue of $1.1 billion, including Net Deferrals of negative $250 million.
- Net Booking of $875 million.
- Net Income of $61 million.
- Diluted EPS of $0.21.
FY2021 Guidance
- Revenue of $5.6 billion, including Net Deferrals of $325 million.
- Net Booking of $5.9 billion.
- Net Income of $869 million.
- Diluted EPS of $2.97.
Take-two Interactive
In FQ1/2021, for the three months ended June 30, 2020, TTWO reported Revenue of $831 million versus S&P Capital IQ analysts’ consensus estimate of $845 million, with EPS of $0.78 versus consensus estimate of $1.18.
TTWO’s revenues surged 54% year-over-year, driven by an increase in demand for its live-service game Grand Theft Auto Online, which was developed by its Rockstar Games subsidiary. In addition, TTWO’s sports-focused subsidiary, 2K, is expanding eSports offerings while growing a portfolio of sponsors and partners.
Grand Theft Auto Online reported the second-highest number of new player acquisitions within a single quarter since its launch in 2013, as demand increased from TTWO’s recent partnership with Epic Games Store, a digital video game store currently offering various promotions to buy Grand Theft Auto Online.
TTWO is currently running the third season of its NBA 2K League, an eSports joint venture created in partnership with the National Basketball Association (“NBA”), which has built a portfolio of high-profile sponsorships, including Anheuser-Busch Inbev (EBR: ABI), AT&T (NYSE: T), GameStop (NYSE: GME), and SAP (NYSE: SAP).
Last week, TTWO announced a $192 million acquisition of Playdots, a U.S. mobile games developer with a portfolio of titles including Dots, Two Dots, and Dots & Co., which together have attracted more than 100 million downloads.
Last month, TTWO’s Private Division, a publisher subsidiary, announced three publishing agreements with top independent game developers including, Moon Studios, who is best known for the game Ori and the Blind Forest, League of Geeks, who is best known for the game Armello, and Roll7, who is best known for the game OlliOlli.
On the earnings call, Strauss Zelnick, CEO of TTWO, stated,
“We continue to prepare for our industry’s forthcoming transition to a new console cycle, which will provide our world-class development teams with a better platform on which to captivate and engage our audiences.”
TTWO’s stock is currently trading at $172.67 per share, a 3% increase since the earnings announcement and a 32% increase in the past year.
FQ2/2021 Guidance
- Revenue of 750 million to $800 million.
- Net Booking of $775 million to $825 million.
- Net Income of $98 million to $110 million.
- Diluted EPS of $0.85 to $0.96.
FY2021 Guidance (raised)
- Revenue of $2.8 billion to $2.9 billion.
- Net Booking of $2.8 billion to $2.9 billion.
- Net Income of $349 million to $380 million.
- Diluted EPS of $3.04 to $3.30.
Video Game Industry
According to NDP Group’s report called “Q2 2020 Games Market Dynamics: U.S.”, this past quarter, consumer spending in the video game industry reached $11.6 billion, a 30% increase year-over-year.
Game publishers are all starting to put a heavy focus on live-service games, as it provides the industry with a method to generate reoccurring revenues while increasing margins at scale.
CHART 1: NASDAQ 100 vs ATVI (red), EA (orange), and TTWO (blue) – Past Year Stock Performance
Other recent eResearch article related to the video game industry:
- July 2020: Vindex Announces Acquisition of Belong Gaming and Plans to Spend $300M to Open 1,500 Physical Gaming Arenas
- July 2020: Video Games & eSports Betting Update – Sony Invests US$250M in Fortnite and Embracer buys Sweden-based Saber Interactive for US$525M
- June 2020: eSports Betting Industry Update as Capital Markets Activity Increases & Companies Innovate to Grab Market Share
