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Videogame publishers anticipate the pandemic-fueled turbocharging of their industry is here to stay, but engagement is slowing and hurting their stocks.
Going into earnings season, Wall Street knew that comparisons to last year would be tough. The April-to-June quarter lapped the first full calendar quarter of pandemic stay-at-home mandates, when videogame demand skyrocketed as it served as a go-to option for entertainment and online socialization, given that the medium has evolved into a gathering place for millions if not billions world-wide.
While results were still strong, the forecasts for many of the companies caused consternation, as they showed at least a plateau for the videogame boom, and stocks as a whole fell.
The one area that still appears most unsettled is mobile games, as two of the biggest names in mobile games headed in different directions. Mobile is the fastest growing segment in the nearly $200 billion videogame market, and results showed that with more outdoor options open, gamers will still have their phones on them, but confidence moving forward is not universal.
Zynga Inc.
ZNGA,
caused a lot of the confusion with its Thursday report, faring the worst of the publishers as shares plunged more than 15% following a disappointing outlook and bookings in an otherwise decent earnings report. Cowen analyst Doug Creutz probably summed up the week the best in a note titled “We almost got through earnings season without a disappointment…almost.”
“[Zynga] management indicated they saw a demand slowdown in the second half of the quarter,” Creutz said “This is entirely consistent with what we saw from Activision, Take-Two and EA, the former two of which also had uncharacteristically small beats, and while EA had a bigger beat, it was heavily driven by genuine unit upside surprise from a new launch title.”
However, Playtika Holding Corp.
PLTK,
swung to a profit versus its loss in the year-ago quarter — slight below Street estimates however — while revenue topped estimates. The Israel-based mobile game developer, which went public in January, is considered a top pick by Cowen’s Creutz as he said titles like “Bingo Blitz” and “Solitaire Grand Harvest” are showing stronger growth than anything in Zynga’s catalog. Playtika shares had the best week, rising 13%.
The consensus from the week’s earnings was that videogame engagement had slowed down a bit, but reached a plateau and is expected to stay strong.
“Twitch data also suggested a slowdown in gaming engagement in the second half of Q2,” Creutz wrote. “However, the same data also suggests that gaming engagement stabilized in July, which is consistent with the guides we saw this week from ATVI/EA/TTWO/PLTK.”
While a lot of the spotlight on Activision Blizzard Inc.’s
ATVI,
Tuesday earnings report concerned how the company was dealing with accusations of gender inequality and harassment, results topped Wall Street estimates but full-year revenue and booking outlooks didn’t. Even so, shares were relatively unscathed, closing down 1.4% for the week.
Activision Blizzard said that the mobile version of its “Call of Duty” franchise was on track to topping $1 billion in consumer spending on the year, and that mobile on the whole made up 40% of the company’s bookings on the quarter. The company’s King segment, with its lead game “Candy Crush” and other mobile titles, accounted for 28% of revenue.
Take-Two Interactive Software Inc.
TTWO,
shares fell 8.7% for the week following its Monday earnings release. The company’s report suffered from an unchanged outlook on the year, while analysts expected a raise, on the announcement that the release of two of its game titles would be delayed.
Similarly, Take-Two is expanding its mobile offerings with its recent acquisitions of Socialpoint, Playdots and now Nordeus. The company noted its “WWE SuperCard” title is the lead mobile game from its 2K label with more than 24 million downloads.
Read: Gamers spent billions more on videogames during the pandemic and companies are looking for more
Electronic Arts Inc.
EA,
shares fell 5.3% on the week after beating on earnings but offering a mixed outlook in its Wednesday report, where the current quarter’s revenue topped Street estimates but its full-year guidance didn’t.
EA mobile revenue climbed 8% to $218 million, while overall revenue rose 6% to $1.55 billion. The company said “a focus on mobile” for game creation was one of its long-term priorities moving forward. Mobile is a “significant part” of the company’s live services, which span all its game categories and accounts for nearly 80% of EA’s revenue.
Over the past 12 months, Activision Blizzard shares are down 5%, Take-Two shares are down nearly 11%, EA shares are off 7%, Zynga shares are down nearly 20%, and Playtika shares are 7% below their January IPO pricing. In comparison, the S&P 500 index
SPX,
is up 32% and the iShares Expanded Tech-Software Sector ETF
IGV,
is up 35%.
