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As many people stayed at home due to the COVID-19 pandemic, masses of gamers turned to their video gaming consoles for entertainment. According to an Insider Intelligence report, consumers spent $44 billion on gaming software and services last year. However, in 2021, monthly digital gamers are expected to rise year-over-year by only 1.1%.
Using the TipRanks Stock Comparison tool, let us compare two gaming companies, Take-Two Interactive and Activision Blizzard, and see how Wall Street analysts feel about these stocks.
Take-Two Interactive Software (TTWO)
Take-Two Interactive Software, Inc. is a developer, publisher and marketer of interactive entertainment. This interactive entertainment is designed for console gaming systems, personal computers, smartphones and tablets. The company publishes and develops its games through Rockstar Games, 2K, Private Division, Social Point, and Playdots.
TTWO generates revenue primarily through the sale of video game titles developed internally or video games developed by third parties. A core part of the company’s business strategy is to build entertainment franchises across different genres. TTWO seeks to create sequels for these franchises and explores incremental revenue opportunities through add-on content, virtual currency and in-game purchases.
Last month, TTWO announced robust fiscal fourth quarter results with GAAP net revenues of $839.4 million, up 10% year-over-year, while digitally delivered GAAP net revenue increased 19% to $753.3 million.
At the end of Q4, TTWO had total net bookings of $784.5 million, up 8% year-over-year. The company defines net bookings as the net amount of products and services sold through retail or digitally and includes merchandise, licensing fees and in-game advertising.
For fiscal Q1, Take-Two projects net revenues to be between $730 million and $780 million. The company’s forecast for GAAP diluted net income is from $1.00 per share to $1.10 per share. For fiscal 2022, the company expects GAAP net revenue to be between $3.14 billion to $3.24 billion.
On June 2, the company acquired privately held Nordeus, a mobile games developer, in a cash and stock deal valued at $378 million. The company had acquired Social Point in 2017 and Playdots in 2020. The acquisitions coordinate well with the company’s strategic initiative of bolstering its mobile business. (See Take-Two Interactive stock analysis on TipRanks)
Take-Two Interactive’s Chairman and CEO Strauss Zelnick said at the earnings call, “We anticipate that the overall addressable market for our industry will be notably larger going forward than it was pre-pandemic. However, as the world returns to a new normal, we expect a moderation of the trends that benefited our industry over the past year.”
Zelnick added, “…we're highly optimistic about our growth trajectory, and we'll be making significant investments this year to enhance our enterprise in key areas such as creative talent, IT, and other infrastructure.”
The company said on its earnings call that for FY22, it plans to release 21 titles while in FY23 and FY24, TTWO expects to release over 40 titles, including 19 core releases. The company expects to generate 60% of its net bookings from the United States and the remainder from international markets.
To that end, the company wants to expand the distribution of its products in Asia and establish its presence in online gaming, especially in countries like China and South Korea. The company’s label, 2K Sports, has obtained a multiple year license from the NBA to develop on online version of its NBA simulation game in China, Taiwan, South Korea and Southeast Asia.
Following the announcement of the Nordeus acquisition, Robert W. Baird analyst Colin Sebastian reiterated a Buy and a price target of $215 on the stock. Sebastian viewed the acquisition as “…providing Take-Two with greater scale in mobile franchises and development resources/expertise. We expect further industry consolidation in coming months and years given the fast pace of new game development and the increasing importance of mobile as a platform.”
Consensus among analysts on Wall Street is a Moderate Buy based on 11 Buys, 6 Holds and 1 Sell. The TTWO average analyst price target of $213.91 implies approximately 16% upside potential to current levels.
Activision Blizzard (ATVI)
Activision Blizzard has three business segments, including Activision Publishing, Blizzard Entertainment and King Digital Entertainment.
Activision primarily generates revenues through games, in-game sales and licensing software to third parties. It offers content through both premium and free-to-play offerings. The company’s key product franchises include Call of Duty, Warcraft and Candy Crush.
These franchises delivered strong double-digit year-over-year rise in net bookings in Q1. In the first quarter, ATVI posted net revenues of $2.28 billion, a jump of 27.4% year-over-year. The company reported diluted earnings of $0.79 per share compared to diluted earnings of $0.65 per share in the same quarter last year.
For Q2, ATVI expects revenues of $2.14 billion and non-GAAP earnings of $0.91 per share. For the full year of 2021, the company anticipates net revenues of $8.37 billion with earnings of $3.42 per share.
The company’s strategy centers around its view that franchises completely owned by ATVI offer endless opportunities. Accordingly, the company is increasing its investment in its franchises and potential new franchises as it also faces competition from Chinese companies and platform providers.
Additionally, Activision plans to expand its creative and development teams. From the start of last year through to the end of 2022, it plans to hire more than 2,000 developers.
The company’s Call of Duty has been a successful franchise, as the number of players has grown to over 100 million players in the span of less than a year. The Call of Duty: Mobile continued to see strong year-over-year player engagement and investment in Q1. The franchise is also attracting millions of players in China. Later this year, the company intends to release its premium Call of Duty game with multiplayer and cooperative modes of play.
Further developing its franchises, the company’s King Digital Entertainment has introduced new Candy Crush features and portfolio titles. King’s Crash Bandicoot: On the Run, a new mobile title launched in Q1 this year, has been downloaded 30 million times to date. (See Activision Blizzard stock analysis on TipRanks)
Activision intends to further expand its franchise pipeline in 2022 and beyond. This includes Diablo IV, Overwatch 2 and multiple Warcraft mobile titles that are expected to grow substantially.
Activision Blizzard’s Chief Commercial Officer Armin Zerza said at its earnings call, “Regarding the fleet, our expanded teams are focused on delivering epic in-game and upfront content. This means that we'll continue to support our franchises with new in-game content, events and features all of which are critical elements of our business as we focus on keeping our communities engaged and drive year-round player investment.”
Last month, following ATVI’s recent changes to the content for Overwatch 2 and addition of new content, Oppenheimer analyst Martin Yang reiterated a Buy and a price target of $110 on the stock. Yang said in a research note to investors, “We believe Activision Blizzard has entered a transition period to reposition its studio assets and development talents in response to aging franchises and new player engagement and monetization trends. So far, it has executed a series of successful turnaround for its core franchise, Call of Duty.”
Consensus among analysts on Wall Street is a Strong Buy based on 16 Buys. The ATVI average analyst price target of $117.13 implies approximately 21% upside potential to current levels.
Analysts are cautiously optimistic about TTWO while they are bullish on ATVI. While TTWO is building a variety of franchises across different genres, ATVI is working on innovating its franchises that are wholly owned by the company.
Based on the upside potential over the next 12 months, ATVI seems to be a better buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.