Back to top

Analyst Blog

The last week was a crucial one as we had results from almost all big names in the video game industry. Plus, leading video game retailer, GameStop Corp (GME - Free Report) slashed its third quarter and full year 2016 outlook citing weak sales of new games.

Recap of the Developments

1.    Earnings:

Activision Blizzard, Inc. (ATVI - Free Report) : Yesterday, Activision posted third-quarter 2016 results wherein adjusted earnings of 46 cents beat the Zacks Consensus Estimate of 39 cents but revenues of $1.568 billion missed the consensus mark of $1.575 billion. Shares were down nearly 4% in aftermarket trading. However, on a year-over-year basis, revenues were up nearly 59% driven by the overwhelming success of Overwatch (over 20 million users since its release on May 24, 2016), World of Warcraft: Legion (sold 3.3 million copies on the first day itself), King Digital Entertainment, increasing digital revenues and continued strength in the Call of Duty title. The company also raised its guidance for the year. Currently, Activision has a Zacks Rank #1 (Strong Buy).

Electronic Arts Inc (EA - Free Report) : EA reported better-than-expected second-quarter fiscal 2017 results. Adjusted earnings per share (including stock based but excluding deferred revenue and other onetime items adjusted for taxes) of 43 cents were way ahead of the Zacks Consensus Estimate of 29 cents. Revenues (including deferred revenues) were $1.098 billion, much ahead of $1.091 billion. It is to be noted that EA and a host of other video game companies have changed the way they report their non GAAP fiscal results to meet stricter guidelines imposed by the SEC. The company will no longer include the impact from revenue deferrals accounting treatment on certain online enabled products. EA also raised fiscal 2017 guidance given anticipation of strong demand for new Battlefield and Titanfall games and strength in mobile games.Currently, Electronic Arts has a Zacks Rank #1.

Sony Corp (SNE - Free Report) : Sony posted second-quarter fiscal 2016 earnings per share of ¥3.76 (4 cents) that declined 85.6% year over year. Net sales also declined 15.1% to ¥1,411.9 billion ($14.0 billion). Six out of the nine segments including Games & Networks reported dismal numbers. Sales and operating revenues at the  GN&S segment fell 11.3% year over year to ¥319.9 billion ($3,167 million) marred by forex fluctuations and price cut for PS4 hardware. Sony carries a Zacks Rank#3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Take-Two Interactive Software Inc. (TTWO - Free Report) : Take Two reported second-quarter fiscal 2017 results wherein both adjusted earningsof 35 cents per share and revenues of $420.2 million beat the respective Zacks Consensus Estimate of 14 cents and $404.7 million. Revenues grew over 21% year over year driven by key offerings like NBA 2K16, BioShock: The Collection, and XCOM 2 and continued strength in Grand Theft Auto V and Grand Theft Auto Online games .The company provided guidance for the third quarter of fiscal 2017. Take Two expects non-GAAP revenues of $475 million to $525 million. Non-GAAP earnings are expected to be in a range of 30 to 40 cents per share.Take-Two carries Zacks Rank#3.

Zynga Inc (ZNGA - Free Report) : Zynga reported third-quarter 2016 loss per share of 3 cents that compared unfavourably with the Zacks Consensus Estimate of a loss of 2 cents. Revenues of $196.7 million easily topped the consensus mark of $182.8 million. Zynga’s mobile daily active users (DAU) fell 5.2% year-over-year to 18 million. Zynga carries Zacks Rank#3.

Glu Mobile Inc: (GLUU - Free Report) : Glu Mobile reported third-quarter 2016 loss per share of 33 cents as against breakeven results in the year-ago quarter. Revenues of $51.4 million declined 18.8% year over year. Also, the company announced that its Global Studios’ chief Nick Earl, will take over CEO duties from Niccolo de Masiwill. Masiwill will be elevated to the position of the executive chairman of the company. Glu Mobile also purchased a majority stake in Crowdstar for $45.5 million. Crowdstar is a leading name in the mobile gaming space. Glu Mobile carries Zacks Rank #4 (Sell).

2.  Video game retailer, GameStop cut its third-quarter as well as fiscal 2016 outlook due to soft sales of new video games as well as the current sell-through rate of new video game hardware. Management now expects third-quarter sales to be $2 billion and same store sales to decline in the range of 6% to 7%. Earlier, the company had projected sales growth of 2% to 5%, while same-store sales were expected to range between a 2% decline and a 1% increase. Earnings are now projected to be 45 cents to 49 cents compared with range of 53 cents to 58 cents expected earlier. GameStop carries a Zacks Rank#3.

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

0.80%

27.15%

EA

-2.84%

29.70%

GLUU

-3.48%

-27.34%

MSFT

-0.75%

18.94%

NTES

-7.63%

76.78%

TTWO

7.33%

40.79%

ZNGA

-0.72%

18.97%

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the last five trading sessions, NetEase (NTES - Free Report) was down 7.63% while Take Two Interactive was up 7.33%.

Over the last six-month period, NetEase surged the most (76.78%). The increasing popularity of mobile-based games and the strength of PC games (licensed & self-developed) continue to keep investors interested in the stock. Moreover, growing mobile advertising revenues were an added incentive.

Glu Mobile was down 27.34% over the same time frame due to the underperformance of most of its releases. The weak third-quarter results were somehow overshadowed by the announcement of a new CEO and acquisition of majority stake in CrowdStar. Yesterday, shares were up nearly 2% in aftermarket trading.


Confidential: Zacks' Best Investment Ideas

Would you like to see a hand-picked "all-star" selection of investment ideas from the man who heads up Zacks' trading and investing services? Steve Reitmeister knows when key trades are about to be triggered and which of our experts has the hottest hand. Click for his selected trades right now >>