Impact of Lockdown On Gaming Stocks

April 24th, 2020 by Trefis Team
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While the markets have tumbled due to the spread of the novel coronavirus, stocks of gaming companies have fared well. The gaming companies stand to benefit in the current crisis, as the demand for gaming could see traction, given that more people are confined to their homes, eschewing more public forms of entertainment. Although the global economy is feared to go into recession, gaming is positioned to fare well during and after the current crisis. In fact, there has been over a 70% surge in video game usage during peak hours, while gaming spend grew 34% y-o-y on software. Our indicative portfolio of 4 U.S. listed gaming companies has gained ~ 10% year-to-date on an equally weighted basis, as compared to a 14% decline for broader S&P 500 (through April 23).  For more details on the stock price and fundamental performance of some of the key U.S. listed gaming companies, view our  Gaming Companies Portfolio.

For most of the gaming companies, the investment cycle is expected to pick up in order to develop new games, especially keeping in mind the arrival of newer generation consoles. Both Sony and Microsoft are expected to launch their new generation consoles in holiday season 2020. With new consoles, gaming demand is expected to increase. In fact, the global gaming market is expected to expand 27% between 2019-22. These trends in the gaming industry largely explain the movement in stock prices, and their outperformance vis-a-vis broader markets.

Activision Blizzard (11.6% YTD return, $51 billion market cap): Activision Blizzard has been doing well with its Call of Duty: Modern Warfare, which was released in November 2019, and it is currently the top selling game of 2020. The game garnered sales of over $1 billion within one month of its launch, and with the latest rankings placing it at top spot thus far in 2020, will likely bolster Activision Blizzard’s Q1 2020 revenue growth. The company will report its Q1 earnings on May 5.

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Electronic Arts (6.5% YTD return, $33 billion market cap): Electronic Arts, after seeing a bad fiscal 2019, appears to be back on a growth track. It struggled in fiscal 2019 due to lower user engagement for some the company’s games, including Battlefield and Need for Speed franchises. However, thus far in fiscal 2020, the company has posted low double-digit top line growth, led by growth in Apex Legends, Star Wars, and FIFA franchises. The company will report its full fiscal 2020 earnings on May 5.

Zynga (21.7% YTD return, $7 billion market cap): Zynga is a relatively small company, but it has given better returns over the recent past. The company’s strategy of growth through acquisitions has paid off, thus far. Over the recent years, it acquired gaming portfolios of Gram Games and Small & Giant games, and they are doing well with increased user engagement for Merge Dragons!, and Empires & Puzzles. The company is expected to launch multiple new games in 2020. Last month, it released Harry Potter: Puzzles & Spells, and these new games will likely aid the top line growth.

Take Two Interactive (1.7% YTD return, $14 billion market cap): Take Two Interactive’s NBA2K20, and Grand Theft Auto V are among the top 10 selling games of 2020. The company plans to make significant investments toward development of new games, amid the launch of newer generation consoles.

 

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