Among the dozens of technology events shut down by the spread of Covid-19 was the gaming industry’s largest trade show, E3. The annual June event has historically served as a launchpad for forthcoming games and the consoles to play them on.
But as Piper Sandler analyst Yung Kim notes, the show must go on. With E3 canceled, a fragmented slate of live streamed events will stand in—most notably
forthcoming PlayStation 5 reveal event.
A steady drip from different publishers could actually be a good thing, with Americans seeming to be eager for any form of live entertainment in the absence of sports. This year’s remote NFL draft drew record viewership, after all. And Sony had already planned to skip E3 for an in-house stream of its own, well before the novel coronavirus was on anyone’s radar.
Take-Two Interactive Software
(TTWO) had all outperformed the broader market in the 60-day lead up to the event from 2013 to 2018. This year, Kim says Activision Blizzard is the best positioned of the trio for the second half of 2020.
Kim wrote in a note on Tuesday that Sony’s event—which was postponed from June 4 amid the current nationwide protests—could give fans a look at Activision’s annual core Call of Duty title on the next-generation console.
He also notes the Blizzard side will launch a World of Warcraft expansion in the second half of 2020. As a computer game, it won’t be affected by industrywide uncertainty surrounding the shift to new consoles. World of Warcraft expansions—which generally come every other year—add between $250 million and $300 million in year-over-year revenue growth in the year of release, he notes.
“Overall, we look for Activision to post industry-leading growth in 2020, with ATVI shares poised to outperform the group based on the 2020 growth and the company’s catalyst path through 2021,” he wrote.
Another bright spot for Activision, according to Kim, is its new digital monetization model for Call of Duty: Modern Warfare, where users can access new content free with the option to pay for cosmetic upgrades. This model will drive improved in-game spend compared with 2018’s title.
“The expectation is for the free and earnable content to drive engagement,” he wrote.
Just as much of the U.S. began to stay home to slow the spread of Covid-19, Activision launched a free-to-play battle-royale game called Call of Duty: Warzone. It already has more than 60 million players.
Kim sees upside for the Activision segment, citing Warzone and its Call of Duty: Mobile. He thinks the King segment—which includes Candy Crush, among other mobile games—could take a hit from near-term drops in advertising revenue. From the Blizzard segment, he currently expects Diablo 4 and Overwatch 2 to release in 2021.
Kim has an Overweight rating on Activision, as well as on Take-Two and EA.
For EA, he thinks the company will rely on growth from its in-game digital sales—known as live services. He forecasts 10% year-over-year growth for Apex Legends, and 9% year-over-year growth for all other live services revenue, primarily driven by the Ultimate Team trading card game mode in its sports franchises and The Sims.
Though he thinks Take-Two offers a sparse fiscal 2021 release slate, he sees potential in coming titles like Disintegration and PGA Tour 2K21. And the company boasts 93 titles under development due in the next five years, about half of which are from existing intellectual property.
“The company does expect a return to growth in FY22, when those investments begin to bear fruit,” he wrote. “Until then, the company will lean even more heavily on GTA [Grand Theft Auto] Online.”
Shares of Activision were down 1.7% to $71.77 on Tuesday, while Take-Two and EA shares were down 2% and 1.1%, respectively. The
index was up 0.2%. Those three videogame stocks are well up in 2020 despite the Covid-19 selloff and subsequent rally.
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