The holiday season is the most critical time of year in the video game industry as investors and publishers watch closely to see which games are going to me the season’s must-have holiday gifts. KeyBanc analyst Evan Wingren recently took a deep dive into this year’s holiday video game outlook and came up with five trends investors should be watching.
The Big Guns
Activision Blizzard, Inc. (NASDAQ: ATVI) and Take-Two Interactive Software, Inc (NASDAQ: TTWO) are well-positioned with their holiday releases. Activision Blizzard is releasing “Call of Duty: Black Ops 4,” “World of Warcraft” and “Destiny” expansions, and Take-Two’s “Red Dead Redemption 2” is one of the most highly-anticipated and potentially largest releases of the holiday season.
Video game spending is up significantly in recent months heading into the holiday season. According to KeyBanc’s proprietary spending tracker, a sample of about 150,000 gamers upped their spending by about 36 percent year-over-year in the months of July and August.
The “Fortnite” phenomenon may finally be peaking. KeyBanc data suggests “Fortnite” spending growth is slowing and Twitch viewership has plateaued.
A relatively lackluster second quarter has the industry well-positioned for a second-half rebound. Revenue growth for major publishers was up only about 4 percent in the second quarter, while EBITDA margins dropped to about 18 percent from around 24 percent a year ago.
New Growth Trends?
The holiday season may set the stage for new growth trends to emerge in 2019. Wingren said eSports and mobile gaming could provide major revenue tailwinds next year.
For gaming investors looking for the best way to position their portfolio headed into this year’s holiday season, Wingren says investors should stick with the market leaders.
“Our favorite ways to play the holiday season are TTWO and ATVI, and we would be buying the shares,” he said.
KeyBanc has the following ratings and price targets for U.S.-listed video game publisher stocks:
- Overweight rating and $90 target for Activision Blizzard.
- Overweight rating and $137 target for Electronic Arts Inc. (NASDAQ: EA).
- Overweight rating and $152 target for Take-Two.
- Sector-Weight rating and no target for Zynga Inc (NASDAQ: ZNGA).
Photo credit: RockStar Games, "Red Dead Redemption 2" screens
Latest Ratings for ATVI
|Aug 2018||Bank of America||Downgrades||Buy||Neutral|
|Jul 2018||Morgan Stanley||Maintains||Overweight||Overweight|
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