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Video Gaming ETFs Set to Gain on Strong Activision Results

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In the wake of the coronavirus pandemic, people are increasingly engaging in modes of in-house entertainment like video games or streaming services. Activision Blizzard, Inc. (ATVI - Free Report) , which reported first-quarter 2020 earnings results on May 5, has gained 6.3% since the earnings release as it witnessed a rise in the Monthly Active Users (MAUs).

Q1 Earnings at a Glance

The company reported first-quarter 2020 non-GAAP earnings of 76 cents per share, down 2.6% year over year. Consolidated revenues slid 4.9% year over year to $1.74 billion. Adjusting for net effect from the recognition of deferred revenues, total revenues rose 23.4% to $1.47 billion. The Zacks Consensus Estimate for earnings and revenues was pegged at 39 cents per share and $1.32 billion, respectively.

Activision Blizzard also witnessed a rise in the MAUs during the quarter ended Mar 31, 2020. Overall MAUs came in at 407 million in comparison with 345 million as of Mar 31, 2019. The company’s net bookings also rose 21% year over year to $1.52 billion. Net bookings from digital channels were $1.36 billion, up 27.1% year over year. Notably, in-game net bookings were $956 million, up 20.4% year over year.

Commenting on the results, Bobby Kotick, CEO of Activision Blizzard, said that “we delivered strong financial results for the first quarter, and are raising our full year outlook.”

Stay-at-Home Trend Boosts Video Game Demand

Lockdown measures have resulted in the highest spike in video game sales in March over a decade. Interestingly, according to Verizon, overall video-game Internet traffic has risen 75% since stay-at-home orders were imposed in the United States, per The Economist Group report. A NPD Group report, which keeps a track of physical retail sales and a subset of digital downloads in the United States, states that all game-related purchases, including software, hardware and accessories, totaled $1.6 billion (up 35% year over year) in March. The video games sales growth has been the highest since March 2008, when sales had risen to $1.8 billion, per NDP Group.

Activision Blizzard also witnessed robust performance from Call of Duty and World of Warcraft that drove first-quarter results. Call of Duty benefited from the launch of Call of Duty: Warzone on Mar 10, 2020. Call of Duty: Warzone have reached more than 60 million players to date. Further, Call of Duty: Modern Warfare in-game net bookings more than doubled year over year compared with Black Ops 4. Call of Duty Mobile maintained momentum in the quarter under review.

Guidance

For second-quarter 2020, Activision Blizzard expects non-GAAP revenues of $1.69 billion and earnings of 64 cents per share. Net bookings are expected at $1.68 billion. Revenues are estimated to grow 6.5%, while earnings are likely to decline 2.6% from year over year.

For 2020, the company expects non-GAAP revenues of $6.80 billion and earnings of $2.62 per share. Net bookings are estimated at $6.9 billion. Appreciation of the U.S. dollar is expected to hurt full-year net bookings by $100 million.

ETFs to Ride the Tide

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

VanEck Vectors Video Gaming and eSports ETF (ESPO - 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 fourth spot in the fund with 7.1% weight. With AUM of $175.4 million, the fund charges 55 basis points in expense ratio. The fund has gained 1.2% since Activision Blizzard’s earnings release (read: ETFs to Gain From Lifestyle Changes Amid Coronavirus Crisis).

Global X Video Games & Esports ETF (HERO - 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 41 stocks in its basket. Activision Blizzard holds second spot in the fund with 6.8% weight in the fund. With AUM of $81.6 million, the fund charges 50 basis points in expense ratio. The fund has gained 0.6% since Activision Blizzard’s earnings release (read: Hot ETFs to Tap Consumers' Digital Shift Amid Coronavirus).

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