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Activision ETFs Set to Shine on Strong Q3 Results

Sweta Jaiswal, FRM
·5 min read

It seems like there is no stopping video game players this year, with the health crisis forcing people to stay at home. Moreover, the boom in the video gaming space may remain in the post-pandemic era as the outbreak has changed the lifestyle and preferences of Americans to a large extent.

Notably, annual U.S. consumer spending on video games could reach a new high by the end of 2020 and exceed $50 billion, per The NPD Group report. Moreover, there are about 244 million video game players in the United States, about 30 million more than in 2018, according to The NPD Group’s 2020 Gamer Segmentation Report released earlier this year.

Riding the trend, Activision Blizzard, Inc. (ATVI), which reported third-quarter 2020 earnings results on Oct 29, has delivered better-than-expected results. However, it has lost 2.6% since the earnings release.

Q3 Earnings at a Glance

The company reported third-quarter 2020 non-GAAP earnings of 88 cents per share, up 66% year over year. Consolidated revenues rose 55.9% year over year to $1.72 billion. Adjusting for net effect from the recognition of deferred revenues and elimination of intersegment revenues, total revenues rose 52.4% to $1.95 billion. The Zacks Consensus Estimate for earnings and revenues was pegged at 64 cents per share and $1.70 billion, respectively.

Activision Blizzard also witnessed a rise in Monthly Active Users (MAUs) during the quarter ended Sep 30, 2020. Overall MAUs came in at 390 million in comparison with 316 million as of Sep 30, 2019. The company’s net bookings also rose 45.6% year over year to $1.77 billion. Net bookings from digital channels came in at $1.61 billion, up 65.1% year over year. Notably, in-game net bookings were $1.20 billion, up 76.6% year over year.

Commenting on the results, Activision Blizzard CEO Bobby Kotick reportedly said “we are on a path to deliver sustained longterm growth across our fully-owned franchises. With confidence in our ability to continue to execute, we are raising our outlook for the year and remain enthusiastic for our growth prospects next year.”

Video Game Sales to Get a Holiday Boost

The pandemic has already provided a push to the e-commerce industry as people continue to prefer staying indoors and shopping online for all essentials, especially food items. Keeping up with the digitization trend, the upcoming U.S. holiday season is expected to see a significant surge in online sales.

Highlighting this fact, the latest report from The NPD Group projects that consumer spending on video games in the United States may touch $13.4 billion this holiday season (November and December 2020), increasing 24% year over year. Going on, the upside is largely expected to be led by console hardware, headsets, gamepads, mobile, digital full-game and post-launch content on console and PC, and subscription.

There are a number of reasons that can drive the uptake of video games in the upcoming holiday season. An aggravating coronavirus outbreak, limitations or restrictions on some outdoor entertainment options like theme parks, amusement parks, travels or sports tickets, new consoles, increasing player engagement, number of players and also expanding video game titles and content options, can lead the video gaming industry to new highs, per the above-mentioned report.

Activision (44.9% of revenues) revenues jumped 270% year over year to $773 million. The division had 111 million MAUs as of Sep 30, 2020 in comparison with 36 million as of Sep 30, 2019. Solid uptake of Call of Duty: Modern Warfare and Warzone titles benefited the segment’s top line.

Guidance

For fourth-quarter 2020, Activision Blizzard expects non-GAAP revenues of $2 billion and earnings of 63 cents per share. Net bookings are expected to be $2.73 billion.

For 2020, Activision Blizzard anticipates non-GAAP revenues of $7.68 billion (up from previous guidance of $7.28 billion) and earnings of $3.08 per share (up from previous guidance of $2.87). Net bookings are expected to be $8.10 billion.

ETFs to Ride the Tide

Against this backdrop, investors can take a look at the following ETFs:

VanEck Vectors Video Gaming and eSports ETF ESPO

The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Video Gaming and eSports Index, which is intended to track the overall performance of companies involved in video game development, esports, and related hardware and software. It holds 25 stocks in its basket. Activision Blizzard holds the eighth spot in the fund, with 5.2% weight. With AUM of $562.3 million, the fund charges 55 basis points in expense ratio. The fund has lost 3.1% since Activision Blizzard’s earnings release (read: Trade With Low Beta Sector ETFs Ahead of Election).

Global X Video Games & Esports ETF HERO

The fund seeks to invest in companies that develop or publish video games, facilitate the streaming and distribution of video gaming or esports content, own and operate within competitive esports leagues, or produce hardware used in video games and esports, including augmented and virtual reality. It holds 40 stocks in its basket. Activision Blizzard holds the fourth spot in the fund, with 5.1% weight. With AUM of $374.2 million, the fund charges 50 basis points in expense ratio. The fund has lost 3.1% since Activision Blizzard’s earnings release (read: Hot ETFs to Tap Consumers' Digital Shift Amid Coronavirus).

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Global X Video Games Esports ETF (HERO): ETF Research Reports
 
VanEck Vectors Video Gaming and eSports ETF (ESPO): ETF Research Reports
 
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