With inflation rising, many consumers will be pressing pause on their discretionary spending. Activision Blizzard, Take-Two Interactive and Roblox face a big challenge if they want their businesses to be recession-resistant.
- Activision Blizzard, Take-Two Interactive and Roblox report rise in in-game purchases and users
- Take-Two Interactive slashes full-year guidance on mobile weaknesses
- Gaming funds like Global X Video Games & Esports ETF dragged down by Roblox sell-off
The question facing Activision Blizzard [ATVI], Take-Two Interactive [TTWO] and Roblox [RBLX] ahead of their recent earnings was whether their reports would reflect the higher cost of living. More and more consumers are likely watching their pennies and are not splashing out on discretionary items.
Activision Blizzard beat both top and bottom line estimates. For Q3 2022, it reported earnings per share of $0.68 on net bookings of $1.83bn, compared to earnings per share of $0.51 on $1.7bn in net bookings as expected by analysts polled by Zacks. Net bookings fell 3% from $1.88bn reported in the year-ago quarter.
Take-Two Interactive’s net bookings for its Q2 2023 saw an improvement, up 53% year-over-year to $1.5bn. It swung to a net loss of $257m, however, from a net profit of $10.3m a year earlier.
Roblox beat top line estimates but missed bottom line estimates by a wide margin. It reported a loss of $0.50 on net bookings of $702m, versus a loss of $0.35 on $686m as expected by analysts polled by Refinitiv. Bookings were up 10% year-over-year.
The Take-Two Interactive and Roblox share prices plunged following their reports. The Activision Blizzard share price barely moved and remains below the $95 price Microsoft [MSFT] had agreed to acquire the games developer and publisher at.
In-game purchases on the up
While Activision Blizzard’s net bookings were down, in-game bookings were up 13%. Its monthly active users were 368 million at the end of September 2022, down from 390 million a year earlier.
Take-Two Interactive reported a 95% jump in recurrent consumer spending — revenue made from in-game purchases, including virtual currencies, and in-game advertising. The segment accounted for 79% of total revenue.
Roblox’s average daily active users (DAUs) increased 24% year-over-year to 58.8 million, while the number of hours they engaged with its platform was up 20% to 13.4 billion. Average bookings per DAU fell 11% to $11.94, however.
Mobile weakness ahead
There’s no hiding from the fact the gaming industry is facing headwinds from a strong dollar and consumers being reluctant to buy new releases. Take-Two’s CEO Strauss Zelnick said on the Q2 2023 earnings call that “we will probably see some pressure on in-game purchases for a period of time” but expects things to have normalised by the end of the year.
Take-Two Interactive lowered its full-year guidance in light of this. It now expects total net bookings for fiscal 2023 to be between $5.41bn and $5.51bn, down from a previous range of $5.73bn to $5.83bn. Full-year net loss is expected to be significantly wider: $631m to $674m versus previous guidance of $39m to $438m.
Take-Two Interactive has a strong pipeline with 87 titles planned for release over the next two years, but Oppenheimer analyst Andrew Uerkwitz believes the company to be a “tough investment” right now.
“Management [reduced] FY23 guidance, with 70% of the cut attributed to weaker mobile and shifts in release timing. Visibility for FY23's game slate is incrementally better, but such visibility is hardly enough to repair investor confidence in the short term,” Uerkwitz wrote in a note.
Funds in focus: Global X Video Games & Esports ETF
With a number of gaming theme funds having high exposure to Take-Two Interactive and Roblox, which both sold off heavily following earnings, it’s no surprise they’ve been trading lower in the past week.
Activision Blizzard is currently the fourth-biggest holding in the VanEck Video Gaming and eSports ETF [ESPO], with a weighting of 6.54%. Roblox is the ninth-biggest and has been allocated 4.79% of the portfolio, while Take-Two Interactive accounts for 3.79%. The fund is down 41.2% year-to-date and down 2.4% in the past week.
Roblox is the second-biggest holding and Activision Blizzard the fourth-biggest in the Global X Video Games & Esports ETF [HERO]. They’ve been allocated 6.83% and 6.46% of the portfolio respectively. Take-Two Interactive is the fifth-biggest, with a weighting of 5.24%. The fund is down 40.3% year-to-date and down 4.1% in the past week.
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