A stellar year for the gaming industry, but whilst Take-Two stole the show in 2020, these two competing firms made big moves too.
Dec. 30, 2020
The Gaming industry saw a rise in popularity in 2020 as general lockdowns across the world forced us all inside and searching for a distraction to stave off boredom and overall existential dread. Take-Two Interactive (NASDAQ: TTWO) in particular, rode this wave and has seen its stock soar. It owns two popular game publishing companies, 2K and Rockstar, which give gamers annual titles such as ‘NBA 2K’ and ‘WWE 2K’, as well as series games, such as ‘Red Dead Redemption’ and ‘Grand Theft Auto’.
Take-Two Interactive reported an increase in its digitally generated GAAP net income by 15% to $711 million in its Q3 earnings and has been transitioning to digital downloads with ease over the past few years. Whilst this stock is obviously a good buy, it has strong competition in the gaming industry, with companies such as Activision Blizzard (NASDAQ: ATVI) and EA (NASDAQ: EA) that should also be considered as either an alternative or as an additional investment to a gamer’s portfolio.
Activision Blizzard has generated great returns over the last 5 years, with its stock up over 100% since then as well as climbing roughly 50% in 2020. As of the end of Q3 this year, it had a monthly active user base of 390 million which has largely benefitted from the popular franchises of ‘Call of Duty’ and ‘World of Warcraft’. Although this number is down from the previous quarter, its most recent earnings saw GAAP net revenue was up a huge 52% year-over-year (YoY) to $1.95 billion.
Activision, much like Take-Two, saw a sharp rise in its revenue from the digital gaming sector, which rose 73% YoY from $1.01 billion to $1.75 billion. With the launch of the PS5 and Xbox Series One in November, both of which have console options for digital-only downloads, this number is likely to keep on increasing for the foreseeable future.
Activision doesn’t just make console games either, as it also has a stake in mobile gaming. Its subsidiary, King, owns the game ‘Candy Crush’ which saw 248 million monthly active users in Q3, which is a small growth of 0.8% YoY. Candy Crush has been consistently in the top 10 of the highest-grossing mobile games each calendar month for the last year, coming in at number 8 in September. For a game that has been around since 2013 in an everchanging sector, this is pretty impressive.
This stock is one that definitely gives Take-Two Interactive a run for its money and one that should be in serious consideration for any investor who loves the gaming industry.
Electronic Arts, or EA, has been around since the 80s and is the publisher of many well-loved titles such as the ‘Star Wars’ games franchise, the ‘Battlefield’ games, and the annually recurring ‘FIFA’ games. In a similar vein to Activision Blizzard, EA saw a 34% decline in its full game segment revenue for the most recent quarter, whilst its live services revenue increased 13% YoY to $869 million. Unfortunately, due to the decline in full game revenue, net income declined 14% to $1.15 billion.
The digital trend of the past few years has exploded in growth throughout the pandemic and is likely to stay this way moving into 2021 and beyond, but for this year EA has remained optimistic after releasing several new titles, of which, ‘FIFA 2020’ engaged over 100 million players worldwide. EA’s net bookings trailing 12 months were up 8% to $5.6 billion and operating cash flow impressively reached the $2 billion mark. In this frame of mind EA has voted to instigate a stock buyback and implement a dividend for the first time in the history of the company. This signals that EA as a business is in good health and would be a good investment for any investor.
Despite having experienced several game-production delays this year, EA is expected to keep pace with its standard release rate. The next year will help push growth forward for this company and bring in more revenue to help iron out the coronavirus kink experienced in full-game revenue.
This company would be a great investment as it provides strong growth, a healthy balance sheet, and now the possibility of a dividend for its shareholders moving forwards.
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