The Zacks Analyst Blog Highlights: Nintendo, Electronic Arts, Activision Blizzard, and Take-Two Interactive Software

For Immediate Release Chicago, IL – October 12, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Nintendo Co., Ltd. […]

For Immediate Release

Chicago, IL – October 12, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Nintendo Co., Ltd. NTDOY, Electronic Arts Inc. EA, Activision Blizzard, Inc. ATVI and Take-Two Interactive Software, Inc. TTWO.

Here are highlights from Friday’s Analyst Blog:

4 Stocks to Bank On During Coronavirus-Led Gaming Surge

Video games have become a major source of entertainment for millions, even more so as the coronavirus pandemic has kept people confined to their homes. Even as several states in the United States have been easing lockdowns and the economy is slowly reopening, the fear of getting infected — with no vaccine or cure in place as yet — is likely to keep people at home for some more time. So, it is likely for people to fall back on video games to kill time.

Per Newzoo’s research report, the global video game market is expected to reach $159.3 billion in 2020, nearly four times box-office revenues and three times music industry revenues in 2019, which totaled $43 billion and $57 billion, respectively.

Moreover, technological breakthroughs have helped industry players expand the user base. Advancement and availability of 5G, augmented reality, virtual reality, as well as cloud gaming are making things better. Mordor Intelligence report cites that the worldwide gaming market is expected to hit $256.97 billion by 2025, at a CAGR of 9.17% between 2020 and 2025.

Video Games Continue to Score Big Amid Coronavirus

After an impressive first-half performance, video game sales once again surged in August, which helped the stocks in the space log solid gains.

According to data from the NDP Group, August saw $3.3 billion in consumer spending across video game hardware, software and accessories, reflecting an increase of 37% year over year. Year-to-date spending totaled $29.4 billion, which is 23% higher than the same period last year.

On the hardware front, consumers spent $229 million, with Nintendo’s Switch being the most in-demand console. Switch also set a new record for August hardware dollar sales, overcoming the previous record set in 2008 by the Wii.

Looking at the top 10 selling video games chart, it was Electronic Arts’ freshly released Madden NFL 21 that snagged the top spot for August, followed by EA SPORTS UFC 4 and Activision Blizzard’s Call of Duty: Modern Warfare.

Markedly, five of the top 10 games for the month came from Nintendo. Animal Crossing, Ring Fit Adventure, Mario Kart 8: Deluxe, Super Smash Bros. Ultimate, and Paper Mario: The Origami King from Nintendo took spots five through nine.

The recent trend of multi-player mobile gaming has also helped game publishers to reap profits. The majority of these games are free to play and do not require costly gaming consoles or other devices. These free-to-play games come with in-game purchases, which eventually generate revenues for publishers.

Moreover, consumers these days buy fewer games but spend more time on them. Hence, publishers have shifted the business model from single-unit to recurring revenues generated from a base of active users.

We believe that the latest developments and robust initiatives to boost player engagement and provide immersive experience amid rapid growth in the gaming industry will help the industry players to bolster gaming revenues in the quarters ahead.

Our Picks

Given this surge in sales and upbeat sentiment in the video gaming industry, investors can tap the following stocks as these are well poised to beat the coronavirus-related headwinds on strong fundamentals. Notably, all these four stocks have outperformed the S&P 500 composite on a year-to-date basis.

Nintendo is expected to gain an edge from the popularity of its Switch video game console. The company has sold a record 22.4 million units of Animal Crossing: New Horizons since its release in March, making it the best Switch launch since the device was released in 2017. Sales of Switch and Switch Lite consoles have also improved significantly so far in 2020.

Moreover, this Rank #1 (Strong Buy) company’s partnership with Tencent allows the latter to publish Super Mario Odyssey and Mario Kart 8 Deluxe in China, the world’s largest gaming market. This bodes well for Nintendo’s prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nintendo is reportedly working on an upgraded version of its Switch console and plans to ship it in 2021.

Activision Blizzard reported that nearly 75 million people have played the Call of Duty: Warzone game since its release on Mar 10. Call of Duty is one of the biggest growth drivers for the company. The game has been the top-selling console franchise for Activision in 10 of the last 11 years.

Strong popularity of its franchises including Overwatch, King’s Candy Crush, Diablo and Hearthstone is expected to boost in-game spending, thereby driving net bookings and the top line of this Zacks Rank #2 (Buy) company in the near term.

Further, the King division is benefiting from strength in the Candy Crush franchise’s popular games like Candy Crush Saga and Candy Crush Friends Saga. Moreover, the success of World of Warcraft Classic is reflective of an expanding portfolio.

Electronic Arts is benefiting from solid demand for popular franchises including Apex Legends, FIFA, Madden NFL, The Sims 4, Need For Speed Heat, Star Wars Jedi: Fallen Order and Battlefield.

New gaming additions including Star Wars: Squadrons, The Sims 4, Star Wars: Journey to Batuu Game Pack and EA SPORTS UFC 4, along with upcoming releases such as Need for Speed: Hot Pursuit Remastered and Medal of Honor: Above and Beyond, among other updates, are expected to boost active user growth in the upcoming holiday season, thereby driving top-line gains.

Moreover, the recent rebranding of EA’s subscription services that now offer more benefits and rewards to users can be a game changer for this Zacks Rank #2 company.

Take-Two Interactive is expected to gain traction from sturdy demand for NBA 2K20 and NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Sid Meier’s Civilization VI, WWE SuperCard, as well as WWE 2K20.

Games like Borderlands 3, Ancestors: The Humankind Odyssey and The Outer Worlds further strengthened this Zacks Rank #2 company’s portfolio.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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