For Videogame Giants, Pandemic Lockdowns Fuel Gamers' Spending -- Update
July 30 2020 - 5:05PM
Dow Jones News
By Sarah E. Needleman
Electronic Arts Inc. reported the strongest June quarter sales
in the videogame company's 38-year history on Thursday, as pandemic
lockdowns resulted in fewer options for people to stay entertained
and connect with friends.
Net bookings, a key industry sales metric that excludes deferred
revenue, shot up 87% from a year earlier to $1.39 billion for the
publisher of blockbuster franchises such as Madden NFL and Apex
Legends. Net income fell 74% in its fiscal first quarter due to a
nonrepeating tax benefit, but adjusted profit more than quintupled
to $1.42 a share.
"The quarter was so wildly beyond our expectations," Electronic
Arts' finance chief Blake Jorgensen said in an interview. "Normally
it's one of our quietest quarters."
The health crisis has been a boon across the $149 billion global
games industry, bringing back lapsed players, attracting newcomers
and driving already heavy gamers to play more often, industry
executives and analysts say.
Electronic Arts' peers, Activision Blizzard Inc. and Take-Two
Interactive Software Inc., are forecast to also post strong
financial results for the period when they report earnings next
week. Analysts say the publicly traded publishers should have all
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 and Take-Two 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 industry giants rising an average of
27% over the past three months through Thursday. That compares with
a more than 11% rise in the S&P 500 index. "They're all going
to have an amazing quarter, " said Wedbush Securities analyst
Michael Pachter.
Other large companies in the games space have also 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 more than 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.
Electronic Arts raised its implied full fiscal-year guidance for
adjusted profit to $5.25 a share from $4.90 a share and adjusted
revenue to $5.95 billion from $5.55 billion. Mr. Jorgensen said it
marks only the second time in his nearly eight years as finance
chief in which he has increased the company's outlook upon issuing
first-quarter results. "We are also conscious that the world is
still in a really difficult place and the economy is only getting
worse," he said.
Game publishers expect Sony Corp.'s new PlayStation 5 and
Microsoft's new Xbox Series X, due out later this year, to be
meaningful sales drivers 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 16:50 ET (20:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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