For Videogame Giants, Pandemic Lockdowns Fuel Gamers' Spending
July 30 2020 - 1:08PM
Dow Jones News
By Sarah E. Needleman
The nation's largest videogame makers are expected to report one
of their best June quarters ever, as pandemic lockdowns resulted in
fewer options for people to stay entertained and connect with
friends.
The health crisis has brought back lapsed videogame players,
attracted newcomers and driven already heavy gamers to play more
often, industry executives and analysts say.
After a strong early-year performance, publishing giants
Electronic Arts Inc., Activision Blizzard Inc. and Take-Two
Interactive Software Inc. are forecast to post even better
financial results for a period when few big-budget games are
typically released. Analysts say the publicly traded companies,
known for making many of the $146 billion global game industry's
biggest hits, likely benefited from players spending more money on
virtual perks such as digital costumes for characters.
Collectively, the companies are projected to more than double their
adjusted earnings from the year-earlier quarter, according to
analysts polled by FactSet.
Electronic Arts, which reports its fiscal first-quarter earnings
Thursday, and Take-Two, whose results are due out next week, also
likely got a lift from delayed starts for professional sports, said
KeyBanc Capital Markets analyst Tyler Parker. The companies make
the sports-simulation franchises "FIFA" and "NBA 2K," respectively,
and broadcasters such as ESPN showed people competing at them. Such
games are "probably the closest substitute right now and people are
probably playing more," Mr. Parker said.
Investors have been bullish on the companies' prospects, with
the share prices of all three rising an average of 25% over the
past three months through Wednesday, compared with an 11% rise in
the S&P 500 index. "They're all going to have an amazing
quarter," said Wedbush Securities analyst Michael Pachter.
The robust outlook comes as other large companies in the games
space have reported significant growth in recent weeks. Microsoft
Corp. had a 65% increase in Xbox content and services revenue in
its most recent quarter. Ubisoft Entertainment SA -- the
Paris-based company behind blockbusters such as "Assassin's Creed"
-- last week said it had record quarterly net bookings, crediting a
boost in sales from stay-at-home orders world-wide.
A surge in users for Roblox Corp., maker of a platform with
millions of free games, has put the company's third-party
developers on track to double their earnings this year from 2019,
the closely held company said Tuesday.
The pandemic hasn't been the only driving force behind game
companies' growth. In recent years many publishers have shifted
away from selling console and computer games for a one-time upfront
fee to making those games free, with the option for players to
repeatedly purchase low-cost digital goods and services. Other
companies have opted for a blended model, charging an upfront fee
while enabling in-game purchases. That has helped publishers
generate more revenue from older games because people tend to plunk
down more cash on digital add-ons the longer they play.
Electronic Arts' "Apex Legends" and Activision Blizzard's "Call
of Duty: Warzone" are free to play, while Take-Two's "Grand Theft
Auto Online" is free with the purchase of "Grand Theft Auto V." All
three blockbuster games sell digital goods, also commonly referred
to as microtransactions. The companies have been adding more
free-to-play mobile games to their portfolios as well, an effort to
capitalize on the fastest-growing segment of the videogame
market.
Mark Rossi of Westbury, N.Y., said he has been playing games
more often since March because the pandemic has prevented him from
being able to enjoy his other pastimes with friends, such as going
to the movies, playing hockey and seeing Broadway shows. He said he
joined Microsoft's videogame subscription service called Xbox Game
Pass for $4.99 a month and estimates he has been spending triple
the amount of money he normally spends on digital goods inside
games such as "Valorant" and "Sea of Thieves."
"I've been trying to stay in and my interactions with friends
have been mostly through games," said Mr. Rossi, a 33-year-old
sales professional. "It's a way for us to do something together
without putting anyone's health at risk."
A key question going forward is whether game makers will be able
to sustain their recent growth, especially if unemployment numbers
decline or more consumer businesses reopen, such as movie theaters,
bars and sports venues. On Ubisoft's latest earnings call, the
company's finance chief, Frédérick Duguet, said there was some
moderation in spending in June and July after "an exceptionally
strong" April and May.
But with the new coronavirus still spreading in many parts of
the world, including the U.S., and next-generation consoles due out
later this year, the global videogame industry is poised to keep
growing, analysts say.
Game publishers expect Sony Corp.'s new PlayStation 5 and
Microsoft's new Xbox Series X to be meaningful sales opportunities
that offer the chance to engage users with their newest content.
Spending on game software world-wide is projected to climb 9.3%
this year to $159.3 billion, according to estimates from Newzoo BV.
That would be up from a 5.2% increase in 2019, according to the
analytics firm's report from this past spring.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
(END) Dow Jones Newswires
July 30, 2020 12:53 ET (16:53 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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