Video games are the highest grossing form of entertainment, even larger than the movie and music industry. With this in mind it is not surprising that the video game publishers have also become great financial investments. Many of the industry’s biggest studios have seen their stocks skyrocket on new content, strategic acquisitions and a transition towards digital offerings. With earnings season less than a month away investors should keep an eye on reports from Electronic Arts (EA), Activision Blizzard (ATVI) and Take Two Interactive (TTWO).

 

Electronic Arts Information Technology – Software

Electronic Arts started the year on a hot streak thanks to the overwhelming success of Star Wars: Battlefront. That has since cooled off and Electronic Arts is coming off a weaker than expected FQ1 printing a 53% decline on the bottom line and 2% on the top. Unfortunately, the second quarter doesn’t fully cover the annual release of FIFA and Madden video games. These games are often two of  highest grossing games year after year, which will help jump start revenue growth, but investors will have to wait until the third quarter. Furthermore, smartphone owners can expect to see new versions of FIFA and Madden. This is a new facet that Electronic Arts had previously never recognized but is now a huge source of revenue. The biggest factor, however, is growth in digital sales and in-game purchases. This new wave of digital offerings are not only convenient they also generate the highest margins. If Electronic Arts can continue to see strong growth in digital offerings then expect to see more favorable price movement. The Estimize consensus is still down on Electronic Arts this quarters. Analysts are expecting 43 cents per share on $1.08 billion in revenue, down 28% on the bottom line and 4% on the top.

Activision Blizzard Information Technology – Software

Activision has been the most promising of the three video game publishers. The company is firing on all cylinders and should have no problem topping expectations this quarter. Strong revenue growth is expected to be driven by a number of new and old sources. They include past success such as Overwatch, Call of Duty (COD) and Candy Crush with more recent ones, including expansions for World of Warcraft and Destiny. Activision is much more than a video game publisher though. The company has made efforts to develop a more broad based media portfolio which features e-sports. The Call of Duty World Championships in early September was the most viewed COD event in history, surpassing more than 20 million views. With so much working in Activision’s favor, the bar might be set too high this quarter. Analysts at Estimize are calling for earnings per share of 47 cents on $1.60 billion in revenue. Compared to a year earlier that represents a 106% increase on the bottom line and 51% on the top.

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