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Videogame Stock Roundup: GameStop's Earnings, Sony's Tepid Forecast, Microsoft's VR Xbox & More

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The videogame space was buzzing with activity this past week wherein we had quarterly results from GameStop Corp (GME - Free Report) and a forecast for Sony Corp.’s (SNE - Free Report) fiscal 2016. Moreover, there were reports that Microsoft (MSFT - Free Report) is gearing up to release a VR capable Xbox sometime in 2017. Activision Blizzard (ATVI - Free Report) launched its new title, Overwatch after a long time.

1. Earnings: GameStop posted first quarter of fiscal 2016 results wherein both adjusted earnings and revenues beat the Zacks Consensus Estimate. However, adjusted earnings per share decreased 2.9%, whereas net sales declined 4.3% year over year during the quarter under review. The decrease in video games sales resulted in the year-over-year deterioration. Also, a tepid outlook for the current quarter caused shares to sink over 7% in the aftermarket session yesterday.

2. Sony recently issued a tepid forecast for fiscal 2016, ending Mar 31, 2017. The release of the forecast was postponed due to the Kumamoto earthquakes, the worst quake in Japan’s recent memory. Sony had previously hinted at possibilities of the earthquake affecting earnings of its segments, including Game & Network Services (“G&NS”). However, PlayStation4 software and hardware,  which have been major contributors to revenue, are expected to remain strong even in the current fiscal. The weakness in Mobile Communications (MC), Imaging Products & Solutions (IP&S), Home Entertainment & Sound (HE&S) is expected to offset strong sales at the segment, along with Pictures and Financial Services.

3. As per gaming site Kotaku, Microsoft will release two new Xbox versions. This includes a smaller, and cheaper model of Xbox slated for launch this year while a more powerful model will be launched in 2017 that will support 4K gaming. It will also be compatible with Facebook, Inc.’s (FB - Free Report) Oculus Rift VR headset. Microsoft’s collaboration with Oculus enables Rift headsets to connect to Windows 10 PCs and stream Xbox One games. Moreover, Oculus is deploying Xbox One controller for Rift as its own Oculus Touch motion controllers are expected to be released in the second half of 2016. AR/ VR is the future of gaming. Apparently, even Sony is also developing a new version PS4 console for 4K gaming. Yesterday, Sony announced that PS4 has sold 40 million units as of May 22, 2016, making it the “fastest selling console in the PlayStation history”.

4. Among other developments, Microsoft collaborated with NetEase (NTES - Free Report) to break through the Great Wall of China. Through the NetEase collaboration, Microsoft will launch (both PC & mobile version) its popular game Minecraft in China. Reportedly, Mojang, the developer behind Minecraft along with NetEase is expected to create a new version suitable for Chinese audience and subsequently distribute it via one of NetEase’s subsidiaries.

5. Video game publishing giant, Activision Blizzard recently launched its highly anticipated new title OverWatch, a team based first person shooter game. It is the company’s first new franchise in 17 years and to Activision’s pleasure, the game has received an overwhelming response. The game at present has a rating of 4.5/5 on Metacritic and a whopping 10/10 on Destructoid. Not just gaming enthusiasts, even analysts view this as a “major catalyst” for Activision going ahead. As per a media report, the title is expected to sell 5 to 7 million copies in the second quarter of 2016 and it considers Destiny with sales of over 9 million copies at launch as the “best comparison”. It’s early to say anything about the future of this franchise but expectedly, Activision will leave no stone unturned to develop this franchise into the leagues of super successful titles like World of Warcraft and Diablo. If it can duplicate the success, it will boost its already strong IP library. And this should help Activision’s long term goal of becoming an all round media entertainment giant. The company releases its first movie based on World Of Warcraft, titled Warcraft in June this year. 

Performance

The following table shows the price movement of the major video game companies over both the past five trading days as well as the last six months:

Company

Last 5 Days

Last 6 Months

ATVI

2.10%

5.01%

EA

-0.12%

8.06%

GLUU

4.37%

-29.5%

MSFT

1.59%

-3.35%

NTES

6.55%

4.37%

TTWO

4.57%

8.51%

ZNGA

2.35%

0.58%

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the last five trading sessions, all stocks were up with the exception of Electronic Arts (EA - Free Report) , which was down 0.12%.NetEase was the highest gainer, up 6.55%.

Over the last 6-month period, Take Two (TTWO - Free Report) surged the most — nearly 8.51%. We believe that Take Two is well positioned to benefit from higher sales of the digital version of itsgames, which is also adding to the company’s margins. The company continues to expect growth in digital revenues and increases in recurrent consumer spending.

However, Glu Mobile, Inc. (GLUU - Free Report) was down 29.5% over the same time frame due to underperformance of most of its releases this year. But strong first quarter results, share repurchase authorization and its new Britney Spears and a Taylor Swift game should make investors happy.

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