The coronavirus pandemic continues to buoy the video games industry as people are increasingly engaging in modes of in-house entertainment. Activision Blizzard, Inc. , which reported second-quarter 2020 earnings results on Aug 4, has delivered better-than-expected results. However, it has lost 2.5% since the earnings release.

Q2 Earnings at a Glance

The company reported second-quarter 2020 non-GAAP earnings of 81 cents per share, up 52.8% year over year. Consolidated revenues rose 74.4% year over year to $2.0 billion. Adjusting for net effect from the recognition of deferred revenues and elimination of intersegment revenues, total revenues rose 38.4% to $1.93 billion. The Zacks Consensus Estimate for earnings and revenues was pegged at 68 cents per share and $1.69 billion, respectively.

Activision Blizzard also witnessed a rise in Monthly Active Users (MAUs) during the quarter ended Jun 30, 2020. Overall MAUs came in at 428 million in comparison with 327 million as of Jun 30, 2019. The company’s net bookings also rose 72.2% year over year to $2.08 billion. Net bookings from digital channels were $1.82 billion, up 80.2% year over year. Notably, in-game net bookings were $1.37 billion, up 76.6% year over year.

Commenting on the results, Activision Blizzard CEO Bobby Kotick said “our record engagement resulted in greater revenue and earnings per share than previously forecast. While economic uncertainty could have an impact on our near-term results, the initiatives that drove our growth for the first half of the year should also provide the foundation for long-term growth.”

Coronavirus Drives Video Game Demand

People are increasingly resorting to video games in the United States amid quarantine. Moreover, coronavirus has resulted in drastic changes in lifestyle and preferences of people. Even with some states reopening and easing social-distancing norms, people have been trying to minimize human-to-human contact. In fact, going by the 2020 Gamer Segmentation Report, the latest study from The NPD Group, 244 million people or say almost three out of every four persons in the United States play video games.

Going on, sales in the video gaming industry, including hardware, software, and accessories, reached the highest level since hitting $7 billion in 2010 for the first six months of the year, per an article on The Verge. Sales in the video game industry through June 2020 in the United States came in at $6.6 billion, up 19% year over year.

According to a NPD Group report, the industry, including hardware, software, accessories and game cards, saw a 26% year-over-year rise in consumer spending to $1.2 billion in June (highest tracked spending for the month of June since 2009) per a GameDaily article. 

Activision (49.5% of revenues) revenues jumped 270.5% year over year to $993 million. The division had 125 million MAUs as of Jun 30, 2020 in comparison with 37 million as of Jun 30, 2019. Call of Duty: Warzone has reached more than 75 million players to date. Further, Call of Duty in-game net bookings more than doubled sequentially and were almost five times higher year over year, creating a new quarterly record.

Guidance

For third-quarter 2020, Activision Blizzard expects non-GAAP revenues of $1.80 billion and earnings of 75 cents per share. Net bookings are expected to be $1.65 billion.

For 2020, Activision Blizzard anticipates non-GAAP revenues of $7.28 billion (up from previous guidance of $6.80 billion) and earnings of $2.87 per share (up from previous guidance of $2.62). Net bookings are expected to be $7.63 billion.

ETFs to Ride the Tide

Against this backdrop, investors can take a look at the following ETFs:

Global X Video Games & Esports ETF (HERO Quick QuoteHERO - Free Report)

The fund seeks to invest in companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own and operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality. It holds 40 stocks in its basket. Activision Blizzard holds third spot in the fund, with 5.8% weight. With AUM of $207.1 million, the fund charges 50 basis points in expense ratio. The fund has gained 1.2% since Activision Blizzard’s earnings release (read: Hot ETFs to Tap Consumers' Digital Shift Amid Coronavirus).

VanEck Vectors Video Gaming and eSports ETF (ESPO Quick QuoteESPO - Free Report)

The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Video Gaming and eSports Index, which is intended to track the overall performance of companies involved in video game development, esports, and related hardware and software. It holds 25 stocks in its basket. Activision Blizzard holds sixth spot in the fund, with 5.6% weight. With AUM of $404.3 million, the fund charges 55 basis points in expense ratio. The fund has gained 0.8% since Activision Blizzard’s earnings release (read: 3 Thematic ETFs to Rule in Pandemic-Stricken Q3).

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