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How Video Game Developers Are Taking On 'Fortnite' — And Why KeyBanc Remains Bullish

Elizabeth Balboa

Analysts left last week’s Game Developers Conference in San Francisco more confidently bullish on video game studios. 

The Ratings

KeyBanc Capital Markets analysts maintained a Sector Weight rating on Zynga Inc (NASDAQ: ZNGA) and Overweight ratings on:

  • Activision Blizzard, Inc. (NASDAQ: ATVI) with an $83 price target;
  • Electronic Arts Inc. (NASDAQ: EA) with a $152 price target; and
  • TAKE-TWO INTERACTIVE SOFTWARE, INC Common Stock (NASDAQ: TTWO) with a $144 price target.

The Thesis

KeyBanc identified trends in artificial intelligence, machine learning and blockchain integration; cross-platform expansion; an esports emphasis and augmented reality.

“The long-term implications of this are likely to be more personalized experiences, longer engagement and higher monetization, which would be positive for ATVI, EA, TTWO and ZNGA,” analyst Evan Wingren said in a Monday note. 

KeyBanc expects AI- and ML-driven personalization to improve long-term engagement, while cross-platform approaches — particularly those favoring mobile — drive average revenue per unit.

Electronic Software Association President Michael Gallagher abated KeyBanc's concerns over potential regulation of violent video games, which appears "extremely unlikely," Wingren said. 

The only potential negative at the conference was heightened involvement by Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOGL), which was read as a harbinger of the major tech companies’ push into gaming.

Bonus Boost From Stifel 

EA earned additional recognition with a reiterated Buy rating from Stifel Nicolaus.

Analyst Drew Crum said the stock is unaffected by the popularity of "Fortnite." 

“In fact, management indicated it's happy with engagement across key franchises,” Crum said, referencing "FIFA Ultimate Team" and "Battlefield 1."

“And looking ahead, we don't expect EA and other publishers to sit still, and suspect [second half of 2018] titles will feature battle royale modes.”

Stifel anticipates strong near-term performance with the release of "FIFA 19," a "Battlefield" sequel, "Anthem" and two mobile titles.

The firm maintained a $141 price target for Electronic Arts. 

Price Action

Throughout the week of the developer conference, Take-Two, EA and Activision Blizzard all trended down, while Zynga rose marginally.

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Take-Two's New Games, Digital Distribution Shift Underpin Bullish KeyBanc Thesis

Photo courtesy of Electronic Arts. 

Latest Ratings for ATVI

Date Firm Action From To
Feb 2018 Barclays Maintains Equal-Weight Equal-Weight
Feb 2018 Credit Suisse Maintains Outperform Outperform
Feb 2018 Baird Maintains Outperform Outperform

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