Earnings Outlook: Gamers spent billions more on videogames during the pandemic, but what happens now?


The COVID-19 pandemic, coinciding with a new generation of gaming consoles, has vaulted the videogames industry into a new stratosphere, and investors are about to see the results and the path to a sequel.

The pandemic sent gamers scrambling for new gear and games to pass the time spent sheltering in place, while more consumers with ample time on their hands joined their ranks. Meanwhile, a new crop of gaming-related companies entered the market with initial public offerings and direct listings.

In 2020, global videogame sales surged 25% to $191.12 billion, according to Lewis Ward, gaming research director at IDC. Those figures include PC games, console hardware and software, and direct mobile-game spending, while excluding in-game ad revenue and aftermarket gaming accessories. Underscoring the COVID-19 effect in that figure, Ward expects sales to grow modestly to $195.29 billion in 2021 and to $195.8 billion in 2022.

In the U.S. alone, consumers spent $59.6 billion on gaming in the 12 months ended March 31, a 32% jump from the year-ago period, according to NPD Group analyst Mat Piscatella,

For more: Videogames are a bigger industry than movies and North American sports combined, thanks to the pandemic

Activision Blizzard Inc.

shares rallied Tuesday after the company’s results and outlook topped Wall Street expectations, driven by a 72% surge in Activision segment from the “Call of Duty” franchise.

Analysts expect a strong showing across the industry in the final quarter that compares to pre-pandemic results. From there on, publishers will encounter increasingly more difficult comparisons to past quarters, as videogames flourished under stay-at-home orders that started en masse in March 2020, and Microsoft Corp.

and Sony Corp.

released long-awaited next-generation gaming consoles at the end of the year.

That puts company outlooks under even more under scrutiny as investors look for clues if COVID-19 was the main driver of results or whether the pandemic just revved up longer-term momentum for the industry.

See also: What to expect from Apple v. Epic, a trial that could change antitrust law and the mobile-app ecosystem

12 months % gain % off 52-wk high Earnings date
Activision 33.0 15.2 May 4
Zynga 36.4 17.3 May 5
Electronic Arts 17.3 8.8 May 11
Take-Two 44.9 18.4 May 18
iShares Software ETF
46.1 10.8
Nasdaq Composite
56.5 4.1
S&P 500 index
46.5 1.3
Electronic Arts

The second of the Big 3 U.S. videogame publishers to report is Electronic Arts Inc.

on May 11. EA, known for sports games such as “FIFA 21” and “Madden NFL 21” as well as action titles like “Apex Legends,” just closed on its $2.4 billion acquisition of Glu Mobile Inc., after finishing off its $1.2 billion acquisition of Codemasters Group Holdings PLC in February.

Analysts expect adjusted earnings of $1.05 a share on revenue of $1.39 billion, based on EA’s forecast of an an unadjusted loss of about 7 cents a share, which includes a 52-cents-a-share tax-accounting charge, on revenue of $1.17 billion.

MKM Partners analyst Eric Handler, who has a buy rating on EA, said the company’s acquisitions have already boosted expectations going into 2022.

“We see EA as the most attractive name in our videogames coverage universe over the next 12 months,” Handler said, taking into account both acquisitions.

J.P. Morgan analyst Alexia Quadrani cautioned that social-media activity — a closely watched metric by analysts to gauge player engagement — has slowed down for “FIFA,” but that “Apex Legends” “continues to trend well.” Quadrani has a neutral rating on EA.


Take-Two Interactive Software Inc.

is scheduled to report on May 18. The company is known for its “NBA2K” and “Borderlands” franchises along with “Grand Theft Auto” and “Red Dead Redemption” under its Rockstar Games label.

After Take-Two yielded its bid for Codemasters to EA, it committed itself to building out its 2K and Rockstar divisions as well as considering future acquisitions “very, very selectively.”

See also: This violent videogame has made more money than any movie ever

Analysts, on average, expect GAAP earnings of 93 cents a share on revenue of $746 million, compared with Take-Two’s forecast of 88 cents to 98 cents a share on revenue of $702 million to $752 million for the fourth quarter.

MKM’s Handler, who has a neutral rating on Take-Two, said he thinks “shares are at, or near, a bottom, but the upside is a big question mark.”

Handler said that what matters most for Take-Two, which is reporting its fiscal fourth quarter, is its fiscal 2022 outlook, and that will determine the direction of shares.

“The lack of visibility into the FY22 incremental game releases is creating a challenge in assessing Take-Two’s growth potential,” Handler said. “The announced ‘GTA V’ remaster for next-gen consoles and the untethering of ‘GTA Online’
are unlikely to be able to offset very challenging ‘GTA’ overall franchise comparisons.”

J.P. Morgan’s Quadrani, who has a neutral rating, pointed to “strong social media activity for ‘GTA’ since September and YTD.”


Zynga Inc.

is scheduled to report earnings on May 5, the day after Activision. Last quarter, Zynga reported record sales and bookings and is leveraging its presence in mobile games, which are the fastest growing segment of the videogame industry. The company’s top games include “CSR Racing 2,” “Words With Friends,” “Zynga Poker,” “Empires & Puzzles” and “Merge Dragons.”

Read: Zynga’s new path includes ‘Harry Potter’ and ‘Game of Thrones’

Truist analyst Sal Catrini, who has a buy on Zynga, said he thinks sentiment leans positive for the stock.

“We think the company could nudge up full-year commensurately and view 2Q consensus as very reasonable, Catrini said.

Analysts expect adjusted first-quarter earnings of 9 cents a share on revenue of $640 million, based on Zynga’s forecast of $635 million.

For the industry as a whole, Catrini sees he expects results to be “in-line to ahead,” with the sector entering “favorable seasonality” with positive fundamentals.”

Roblox and the software makers

Then there’s the crop of companies in the videogame space that have recently dipped their toes into public markets.

Roblox Corp.
which began publicly trading March 10, is scheduled to report on May 10. Analysts expect earnings of 13 cents a share on revenue of $572.6 million.

Unity Software Inc.
which began publicly trading Sept. 18, is scheduled to report on May 11. Analysts forecast a loss of 12 cents a share on revenue of $217.1 million. Also scheduled for May 11 is Playtika Holding Corp.
which started publicly trading Jan. 15. Analysts expect earnings of 15 cents a share on revenue of $580.2 million from Playtika.

Applovin Corp.
which began publicly trading April 15, is scheduled to report on May 12. Analysts have yet to initiate coverage on the stock.

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