By Wallace Witkowski
Take-Two wrapping up sector as Activision, EA kick off videogame earnings with strong results and outlooks
The COVID-19 pandemic, coinciding with a new generation of gaming consoles, has vaulted the videogames industry into a new stratosphere and Take-Two Interactive Software Inc. late Tuesday will cap an earnings season that indicates publishers are seeing more room for growth.
The pandemic sent gamers scrambling for new gear and games to pass the time spent sheltering in place, while more consumers with ample time on their hands joined their ranks. Meanwhile, a new crop of gaming-related companies entered the market with initial public offerings and direct listings.
In 2020, global videogame sales surged 25% to $191.12 billion, according to Lewis Ward, gaming research director at IDC. Those figures include PC games, console hardware and software, and direct mobile-game spending, while excluding in-game ad revenue and aftermarket gaming accessories. Underscoring the COVID-19 effect in that figure, Ward expects sales to grow modestly to $195.29 billion in 2021 and to $195.8 billion in 2022.
In the U.S. alone, consumers spent $59.6 billion on gaming in the 12 months ended March 31, a 32% jump from the year-ago period, according to NPD Group analyst Mat Piscatella,
For more: Videogames are a bigger industry than movies and North American sports combined, thanks to the pandemic (link)
Take-Two (TTWO) caps videogame earnings from major publishers after the bell Tuesday. The company is known for its "NBA2K" and "Borderlands" franchises along with "Grand Theft Auto" and "Red Dead Redemption" under its Rockstar Games label.
After Take-Two yielded its bid for Codemasters to EA, it committed itself to building out its 2K and Rockstar divisions (link) as well as considering future acquisitions "very, very selectively."
See also: This violent videogame has made more money than any movie ever (link)
Analysts, on average, expect GAAP earnings of 97 cents a share on revenue of $746 million, compared with Take-Two's forecast of 88 cents to 98 cents a share on revenue of $702 million to $752 million for the fourth quarter.
MKM Partners analyst Eric Handler, who has a neutral rating on Take-Two, said he thinks "shares are at, or near, a bottom, but the upside is a big question mark."
Handler said that what matters most for Take-Two, which is reporting its fiscal fourth quarter, is its fiscal 2022 outlook, and that will determine the direction of shares.
"The lack of visibility into the FY22 incremental game releases is creating a challenge in assessing Take-Two's growth potential," Handler said. "The announced 'GTA V' remaster for next-gen consoles and the untethering of 'GTA Online'are unlikely to be able to offset very challenging 'GTA' overall franchise comparisons."
JPMorgan analyst Alexia Quadrani, who has a neutral rating, pointed to "strong social media activity for 'GTA' since September and YTD."
How earnings season played out
Activision Blizzard Inc. (ATVI) shares saw a surge after the company's results and outlook topped Wall Street expectations, driven by a 72% surge in Activision segment from the "Call of Duty" franchise. (link)Similarly, Zynga Inc. (ZNGA) showed more people are playing mobile games even as the pandemic subsides and hiked its forecast (link) for the year while announcing a $250 million acquisition of mobile ad and monetization platform Chartboost.
Electronic Arts Inc (link).(EA), known for sports games such as "FIFA 21" and "Madden NFL 21" as well as action titles like "Apex Legends," said it was accelerating its expansion across more platforms and countries along with growth from its recent acquisitions. The company just closed on its $2.4 billion acquisition (link)of Glu Mobile Inc., after finishing off its $1.2 billion acquisition of Codemasters Group Holdings PLC (link) in February.
While analysts expected a strong showing across the industry in the final quarter that compares to pre-pandemic results, publishers encounter increasingly more difficult comparisons to past quarters. Videogames flourished under stay-at-home orders that started en masse in March 2020, and were helped by Microsoft Corp. (MSFT) and Sony Corp. (6758.TO) releasing long-awaited next-generation gaming consoles at the end of the year.
See also: What to expect from Apple v. Epic, a trial that could change antitrust law and the mobile-app ecosystem (link)
Other companies in the space, fresh off recent public offerings included Roblox Corp. (RBLX), which began publicly trading March 10 (link), and reported its first results as a public company (link) on May 10.
Other companies that reported included Unity Software Inc (link).(U), which began publicly trading Sept. 18 (link); Playtika Holding Corp (link).(PLTK), which started publicly trading Jan. 15 (link); and Applovin Corp. (link)(APP), which began publicly trading April 15 (link).
-Wallace Witkowski; 415-439-6400; AskNewswires@dowjones.com
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05-18-21 1207ETCopyright (c) 2021 Dow Jones & Company, Inc.