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Is Lockdown a Bonanza for Game Makers? Earnings on Deck

Tirthankar Chakraborty

While the broader market has been bearing the brunt of the novel coronavirus so far this year, stocks of gaming companies have somewhat fared well. After all, the spread of the deadly virus forced everyone to stay at home, and bored consumers craving for at-home entertainment are using more time on computer and video games, to lift their spirits.

 

Video games have now become one of the most compelling and affordable entertainment options for those at home, with the U.S. gaming industry witnessing a sales jump of 35% in March to $1.6 billion year over year, the highest for the month in 12 years, per the NPD Group.

 

And with gaming being one of the rare entertainment categories in which consumers are actually increasing their outlays during the pandemic, let’s see how Activision Blizzard, Inc ATVI and Electronic Arts EA are positioned for their March 2020 results on May 5, after the closing bell –

 

Activision Blizzard, in particular, is making the widespread lockdown, with millions of people turning to digital entertainment. According to NPD, Activision Blizzard’s warzone battle royal game Call of Duty: Modern Warfare has been one of the best-selling games of the first quarter. It has also been the most profitable games in the 12 months ended on Mar 31.

 

Activision Blizzard reported that nearly 50 million people have played the Call of Duty: Modern Warfare game in the first quarter, while Overwatch, a team-based multiplayer first-person shooter developed by Blizzard Entertainment, has been accessed by 50 million. Such staggering engagement numbers have certainly boosted the top line. 

 

Activision Blizzard’s King Digital Entertainment famous for developing the Candy Crush games for mobile devices too are expected to generate a substantial amount of advertising revenues in the first quarter. King Digital’s revenues are expected to have improved as more people engage in the Candy Crush game on mobile phones amid the lockdown. The Zacks Consensus Estimate for Activision Blizzard revenues is pegged at $1.32 billion for the quarter ending March 2020, suggesting a rise of 4.6% from the year-ago levels.

 

American sporting leagues by the way have promoted eSports more than ever in the midst of the pandemic. And Activision Blizzard is to a great extent involved in eSports. Subsequently, Activision Blizzard’s stock has surely profited noticeably in the first quarter from the mounting popularity of eSports. Analysts thus expect the company’s first-quarter earnings per share to increase to 39 cents from 31 cents a year ago.

 

What’s more, the Zack Rank #3 (Hold) company has an Earnings ESP of +10.39%. Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard, Inc Price and EPS Surprise

 

Activision Blizzard, Inc Price and EPS Surprise

Activision Blizzard, Inc price-eps-surprise | Activision Blizzard, Inc Quote

Encouraging results, no doubt, will lead to a rise in the share price. Thus, the company’s expected earnings growth rate for the current year is 10.2% against the  Toys - Games - Hobbies  industry’s estimated decline of 2.2%.

 

Electronic Arts in the meantime has benefitted from the ongoing shift from physical to digital versions of video games. Notably, contribution of the digital business to Electronic Arts’ revenues increased from 57% in fiscal 2017 to 67% in fiscal 2018 and 75% in fiscal 2019. And the company expects it digital business to have improved in the first three months of this year as well.

 

And why not? Electronic Arts has a strong content portfolio of blockbuster games like FIFA, Madden, Star Wars, Battlefield, and Anthem that have certainly made the most of the lockdown measures. Americans have been glued to these video games more than ever, helping Electronic Arts benefit from the stay-at-home trend. 

 

Electronic Arts not only flaunts a Zacks Rank #1 (Strong Buy) but also has an Earnings ESP of +4.41%. The company, which is part of the Toys - Games – Hobbies industry, is expected to notch whopping earnings growth of 1,850% for the current quarter.

Electronic Arts Inc. Price and EPS Surprise

 

Electronic Arts Inc. Price and EPS Surprise

Electronic Arts Inc. price-eps-surprise | Electronic Arts Inc. Quote

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