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.

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

Activision Blizzard Inc.

will start a parade of earnings from videogame companies this week, and 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.


Activision reports on Tuesday, and is generally an analyst favorite given the wide breadth of the company’s reach into the multitude of today’s videogame markets exemplified by the “Call of Duty” franchise. “Call of Duty” not only serves the traditional console and PC market with “Black Ops — Cold War” and “Modern Warfare” titles, but the franchise has a free-to-play “Warzone” battle-royale option similar to Epic Games’ “Fortnite,” with all of those options available on a mobile platforms.

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

Activision said it expects adjusted earnings of 84 cents a share on revenue of $2.02 billion for the first quarter. Analysts surveyed by FactSet expect adjusted earnings of 70 cents a share given wide interpretation of how Wall Street views the company’s quarterly results.

Additionally, analysts surveyed by FactSet estimate a consensus of bookings, rather than sales, which they place at about $1.8 billion for the quarter, based on Activision’s forecast of $1.75 billion. The Street expects GAAP earnings of 67 cents a share, compared with the company’s outlook of 59 cents a share.

At the end of March, the company appointed Armin Zerza as chief financial officer, to succeed the retiring Dennis Durkin, and said it expected to “exceed [its] prior outlook for the first quarter.”

J.P. Morgan analyst Alexia Quadrani, who has an overweight rating on Activision, expects from “sustained higher engagement through Q1 for ‘Call of Duty,’ with the game notably maintaining its share YTD along with ‘Fortnite.’”

“In the context of more limited 2021 organic growth, we believe stock performance this year will be driven by execution across core franchises and investor enthusiasm for the new game pipeline—factors that we believe favor Activision most as the company has significant long-term opportunities that we do not see as fully reflected in current estimates,” Quadrani said of the industry as a whole.

Activision also publishes the “World of Warcraft” franchise under its Blizzard brand, along with its “Overwatch” and “Diablo” franchises, and “Candy Crush” under its King brand.

MKM Partners analyst Eric Handler, who has a buy on the stock, expects a beat-and-raise earnings report from Activision.

“We continue to like Activision’s approach to expanding its top franchises across more platforms, which should provide a solid runway for growth over the next several years,” Handler said.

Jefferies analyst Alex Giaimo, who has a buy rating on Activision, said the biggest question on the minds of investors is “how to think about the financial trajectory of 2021 given continued momentum within the video game space.”

“What’s important to realize here is that a lot of ATVI’s strength has been driven by significantly improved internal execution, rather than solely the lift from shelter-at-home,” Giaimo said. “From an industry standpoint, there are still multiple tailwinds that should help keep momentum elevated into 2021 (and perhaps considerably longer).”

12 months % gain % off 52-wk high Earnings date
Activision 43.1 12.8 May 4
Zynga 43.5 12.2 May 5
Electronic Arts 24.4 5.5 May 11
Take-Two 44.9 18.4 May 18
iShares Software ETF
50.1 7.2
Nasdaq Composite
57.1 1.8
S&P 500 index
43.6 0.9
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’s Handler, who has a buy rating on EA, said that 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’s 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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