Videogame Stock Roundup: Sony, Nintendo & EA Earnings; Activision's Consumer Products Unit Launch
Earnings releases continued to be in focus this week. Apart from earnings, we had Activision Blizzard ATVI launching a full-fledged consumer products division while Take Two Interactive TTWO made a small but strategic acquisition of Social Point. Facebook FB got a reality check as a U.S court asked it to pay $500 million in damages to ZeniMax for copyright infringement.
Recap of the Developments
Electronic Arts EA : EA reported third-quarter fiscal 2017 results wherein adjusted earnings per share (including stock based but excluding deferred revenue and other onetime items adjusted for taxes) of $2.45 surpassed the Zacks Consensus Estimate of $2.15. Revenues (including deferred revenues) came in at $2.070 billion.
Per EA, total revenue (on a GAAP basis) came in at $1.149 billion, up 7.4% year over year. Continued increases in digital revenues and strength in mobile games and EA Sports titles like Battlefield 1 and FIFA 17 were the driving factors. At present, EA carries a Zacks Rank #3.
Sony Corp SNE : Sony reported third-quarter fiscal 2016 earnings per share of ¥15.24 (13 cents), down 83.7% from the year-ago period due to a ¥112B ($962 million) write-down in its movie business. In the quarter, Sony's sales and operating revenues were down 7.1% year over year to ¥2,397.5 billion ($20.7 billion) marred by forex volatility.
Seven out of its two segments witnessed revenue declines, thus weighing on the top line. However, sales and operating revenues at the Game & Network Services ("GN&S") segment climbed 5.2% year over year to ¥617.7 billion ($5,325 million). Improvements in PS4 software sales and impressive market traction of the newly launched - PlayStationVR - proved conducive to sales growth. Sony carries a Zacks Rank # 5 (Strong Sell).
Nintendo Co Ltd NTDOY : Nintendo reported consolidated results for the nine months ended Dec 31, 2016. Reportedly, for the third quarter, sales were down 21% to ¥174.3 billion. The company slashed its full year operating income guidance to ¥20 billion compared with ¥30 billion projected earlier. Nintendo will soon be ending production of Wii U in Japan as it gears up for the release of its much anticipated new console Switch in March. Nintendo has a Zacks Rank #3 (Hold).
2. Meanwhile, Activision launched a new Consumer Products unit, to be spearheaded by an ex-Walt Disney executive, Tim Kiplin. For some time now, Activision has been working on becoming a broad-based media company. The company has been foraying into newer businesses to leverage the strength of its enviable IP. Last year, the company announced the launch of a film and television unit, Activision Blizzard Studios. In Jun 2016, Activision launched its first movie Warcraft based on its super hit video franchise World of Warcraft. The company is also strengthening its presence in the lucrative e-sports market.
At present, Activision has a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
In the past one year, Activision's shares have generated a return of 22.19%, compared with the Zacks Toys/ games/Hobby Product industry's gain of 19.40%.
3. Facebook has been ordered by a U.S court to pay $500 million damages to ZeniMax for copyright infringement. Facebook COO Sheryl Sandberg was quoted by CNBC saying that the verdict was ""not material to our financials" but Facebook was looking for "options to appeal."
Oculus, Facebook's VR division, was slapped with a $2 billion lawsuit filed by video game company, ZeniMax, claiming Oculus "stole" its intellectual property to boost its own VR research. Apparently, Zuckerberg has denied all allegations and stressed that "The idea that Oculus technology is based on someone else's is just wrong."
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.
At present, Facebook has a Zacks Rank #3. In the past one year, Facebook's shares have generated a return of 15.36%, compared with the Zacks Internet Services industry's gain of 8.61%.
4. Take Two Interactive forayed into the lucrative mobile gaming space with the buyout of Barcelona based game developer, Social Point. Tech Crunch calls it a "big move" by Take Two, which so far concentrated only on PC and console games. The report further added that free-to-play games is a "lucrative development" in the gaming space and with the Social Point buyout, Take Two is now well positioned to benefit in this rapidly growing market.
At present, Take Two has a Zacks Rank #3. In the past one year, Take Two's shares have generated a return of 66.92%, compared with the Zacks Toys/ Games/Hobby Product industry's gain of 19.40%.
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|
Computer and Technology Sector 5YR % Return
Over the last six-month period, Take Two surged the most (36.42%). 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. Take Two recently forayed into free-to-play games space with the acquisition of game developer, Social Point. The acquisition will help it to boost its performance going ahead. Also, the company is well positioned to benefit from the highly anticipated launch of Read Dead Redemption 2 later this year.
Zynga was down 10.88% over the same time frame. Slowdown in its user growth remains a major concern. Moreover, a slowing web business along with intensifying competition is a concern. However, its cost cutting initiatives are a positive. We expect its top line to be driven by popular games like Words With Friends and Poker.
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