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Earnings

Where next for EA and Nintendo shares as gaming stocks diverge on earnings?

Earnings results season has been a busy time for gaming stock traders, as Electronic Arts [EA], Ubisoft [UBI.PA] and Nintendo [7974.T] report their respective results one day after the other.

 

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The PureFunds Video Game Tech ETF’s – the first ETF focused on the global video game industry with 36 holdings – performance year-to-date (YTD) of nearly 9% (through to 5 November) has underperformed the S&P 500’s 24.5%. 

However, the industry is set to grow 7% year-over-year to reach a valuation of $123.54bn by the end of 2019, according to Statista, setting gaming companies, and perhaps their respective share prices, up for a bumper holiday season.

 

EA stock slam dunk

First to kicks things off was EA, which reported their FY20 Q2 results after the bell on 29 October. 

The company’s stock spiked 2.3% the following day on positive revenue growth of 4.8% to $1.35bn and record digital net bookings for the trailing 12 months of $3.88bn, up 8% YoY.

However, earnings of $0.78 per share fell from $0.83 the same quarter a year earlier, missing analysts’ estimates of $0.85, according to Zacks. 

The gamemaker said that it would suspend its NBA Live franchise this year, but expects to expand its line-up of titles over next couple of years, including a new EA Sport’s title. 

CEO Andrew Wilson said that “new EA SPORTS titles are thrilling core fans and bringing in new players”. There was a 22% and 19% increase in unique players in its FIFA Ultimate Team and Madden Ultimate Team titles respectively. 

For Q3, EA forecasts net bookings of $1.94bn and net income of $272m.

 

Nintendo share price spikes on strategy switch

On 31 October, Nintendo announced operating profits for the six months to 30 September were up 53% to ¥94bn after strong sales of almost 2 million units of the Switch Lite – a smaller model of its handheld device launched in September. Shares jumped 7.5% the day following the announcement.

The Japanese gaming company’s CEO Shuntaro Furukawa said it would be “premature” to raise full-year hardware sales guidance for the Switch Lite from 18 million units, Reuters reported. Nonetheless, analysts’ estimates were smashed by the sales figures, especially considering Nintendo was only reporting the first 10 days of sales since its launch. 

The company expects operating profit to come in at ¥260bn for the year to March 2020, and for revenue to be ¥1.25tn. 

Elsewhere, the success of Nintendo’s mobile strategy was not clear, despite the Mario Kart franchise seeing downloads reach 120 million. The lack of a multiplayer feature appears to have hindered user interest, however. Jefferies analyst Atul Goyal told the Financial Times that Nintendo’s inclusion of the much desired multiplayer feature was “inexplicably slow” potentially indicating “overall weakness in decision making”.

 

Ubisoft’s share price tanks after profit warning 

French game publisher Ubisoft reported earnings on 30 October. However, a week before it was due to announce its half-year results it issued a profit warning and delayed the release of three blockbuster games: Watch Dogs: Legion, Rainbow Six: Quarantine and Gods & Monsters. 

Ubisoft’s share price fell more than 16% to its lowest level since April 2017 following the news that it was revising guidance for its 2019-20 fiscal year profits to between €20m and €50m from a previous target of €480m. 

It also slashed revenue guidance, as CEO Yves Guillemot highlighted a “disappointing” reception for Ghost Recon Breakpoint.

Shares saw a small lift 0.4% when it announced its 2019-20 half-year results, which included a 3.5% rise in digital bookings, while its total net bookings and sales were down 11.4% to €661.1m and 9.1% to €697.5m respectively. 

11.4%

HY total net bookings decline

Ubisoft is forecasting Q3 income to be down 32% relative to last year’s haul, and all upcoming delays analysts are expecting the following few quarters to be similarly down.

 

Falling sales at Sony and Microsoft

Meanwhile, there was a reported decline in the gaming divisions at prominent console makers Sony [6758.T] and Microsoft [MSFT].  

Sony reported its best-ever second-quarter profit on 30 October, driven by strong sales of its image sensors. However, its game and network services division saw a 17% fall in sales from the same period a year ago due to declining console sales.  

As a result, the company is forecasting lower-than-expected sales for the fiscal year ending 31 March 2020.  

Microsoft beat expectations on top and bottom lines but its more personal computing unit, the company’s core, fell short of analysts’ estimates, CNBC reported. 

17%

Sony game & network division's Q2 sales decline

Gaming revenue fell 7% to $11.13bn in Q1 FY20 due to lower console sales, below FactSet’s estimates of $10.9bn. It expects gaming revenue “to decline in the mid-20% range” next quarter due to decreased console sales.

 

Activision Blizzard and Take-Two Interactive go head-to-head 

Activision Blizzard [ATVI] and Take-Two Interactive [TTWO] are set to announce their respective Q3 and Q2 earnings results later today (7 November).

Activision’s stock has rallied nearly 20% YTD and despite the last two quarters seeing a decline in both earnings and revenue, the company has managed to beat earnings’ expectations 89% of the time, according to CNBC and analysis from Bespoke.   

However, this time it may not be so lucky. Analysts are forecasting a 40% drop in Q3 earnings to $0.23, according to CNN, and expect revenue to be largely unchanged – 21 of 32 analysts rate the stock a buy. 

Take-Two’s YTD stock performance, meanwhile, lags behind its peer at 12.8% and the company has also seen a decline in earnings and revenue over the last two quarters. 

Despite this recent stint of discouraging earnings releases, analysts on CNN are forecasting consensus earnings per share of $1.71 and sales of $926.9m, while 18 rate the stock a buy.

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