Among the top stories this week, Microsoft Corp. (MSFT Quick QuoteMSFT - Free Report) reported second-quarter fiscal 2017 results. In a separate development, after almost a six-month delay, South Korean gamers can now enjoy Pokémon Go as Nintendo (NTDOY Quick QuoteNTDOY - Free Report) launched the game officially in the country. 

Meanwhile, Facebook Inc zeroed in on Hugo Barra, an ex-Xiaomi executive to spearhead its VR initiatives.

Recap of the Developments

1. Microsoft’s second-quarter fiscal 2017 adjusted earnings of 83 cents and revenues $26.07 billion easily beat the Zacks Consensus Estimate. Though gaming is a very small part of the company’s business, Xbox is an important aspect of the overall video game industry. Microsoft’s gaming revenues fell 3% (1% in constant currency). Xbox Live monthly active users were up 17% to 55 million. The company witnessed more than 26 billion hours of gameplay on Windows 10 PCs and tablets.

The company’s shares have surged 26% compared with the Zacks Computer-Software industry’s gain of 24.31% in the last one year.

At present, Microsoft carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2. After a six-month delay, Nintendo has now officially launched its blockbuster hit game, Pokémon Go in South Korea, on both Alphabet’s (GOOGL Quick QuoteGOOGL - Free Report) Play Store and Apple Inc.’s (AAPL Quick QuoteAAPL - Free Report) iOS store. Per media reports, Nintendo’s Pokémon Go works with Google Maps, which has “limited access” in South Korea. Niantic had earlier sought permission from the South Korean government for access to Korean maps, which was flatly refused. Google had not agreed to South Korean government’s demand to “blur” sensitive locations like government buildings on Maps.

Reportedly, the denial stemmed from the fact that South Korea remains concerned about its national security. It doesn’t share warm ties with its neighbor, North Korea. The simmering border tension between the two nations has led the South Korean government to disallow storage of detailed maps of the country on any other servers except those in South Korea, add media reports.

It remains unknown how Niantic, the firm which developed Pokémon Go, bypassed the Maps issue, add media reports. Niantic chose to remain silent on this issue during the press conference it held in Seoul on Jan 23, 2017.

Nintendo carries a Zacks Rank #3 (Hold). The success of Pokémon Go helped the company’s share price. Over the past one year, its shares are up 55.86% compared with Zacks Toys/Games/ Hobby/Products industry’s gain of 18.42%.

3. Meanwhile, Facebook chief Mark Zuckerberg in a post announced that ex-Xiaomi vice president, Hugo Barra will spearhead all the company’s VR initiatives as well as the Oculus unit. Zuckerberg further added “Hugo shares my belief that virtual and augmented reality will be the next major computing platform. They'll enable us to experience completely new things and be more creative than ever before. Hugo is going to help build that future, and I'm looking forward to having him on our team.”

Facebook had acquired Oculus for $2 billion in 2014. With Oculus, the company is trying to fuel its ambitious AR/VR efforts. Zuckerberg has time and again mentioned that VR is the next big business opportunity. Facebook has been pumping ample resources to boost its VR efforts. A few days back, Zuckerberg said that Facebook was going to spend over $3 billion over the next 10 years.

However, Oculus has been slapped with a $2 billion lawsuit filed by video game company, ZeniMax. Zuckerberg appeared in a Dallas courtroom to testify against the allegations. Apparently, Zuckerberg has denied all allegations and stressed that “The idea that Oculus technology is based on someone else's is just wrong."

At present, Facebook has a Zacks Rank #2.  In the past one year, Facebook’s shares have generated a return of 39.92%, compared with the Zacks Internet Services industry’s gain of 19.39%.

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:

Over the last five trading sessions, Glu Mobile Inc was up 6.98% whereas Zynga Inc was down 2.65%.

Over the last six-month period, Take Two Interactive (TTWO Quick QuoteTTWO - Free Report) surged the most (33.77%). The company continues to benefit from its popular offerings like GrandTheft Auto V and Grand Theft Auto Online (though sales are slowing down), along with its other releases like NBA 2K17. In fact, higher sales of the digital version of the games add to the company’s margins. The company continues to expect growth in digital revenues driven by higher sale of full game downloads and increases in recurrent consumer spending.

Computer and Technology Sector 5YR % Return

Computer and Technology Sector 5YR % Return

Zynga was down 10.76% over the same time frame. Slowdown in its user growth remains a major concern. Moreover, a slowing web business along with intensifying competition are added concerns. However, its cost cutting initiatives are a positive. We expect the top line to be driven by its popular games like Words With Friends and Poker. 

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