I love video games as an investor & a gamer. Here's my unbiased view supported by data, research & facts of how each publisher did in the prior quarter & the outlook ahead:
CY Q1 '22 Bookings vs the prior quarter:
ATVI: $1,481m (down $585m or 28.3%)
Bookings were down primarily due to Activision (-$438m or -49.2%) along with Blizzard (-$209m or 43.3%)
Decrease is primarily due to Call of Duty & World of Warcraft
EA: $1,751m (up $261m or 17.5%)
That includes Full Game sales (up $80m or 42.8%; due to FIFA '22 and some of that has to do with y/y release timing but overall FIFA is still a strong & solid franchise for EA)
Live Services (up $181m or 13.9%; primarily due to a couple of acquisitions that EA made)
TTWO: $846m (up $61m or 7.8%)
That includes Full Game sales (up $95m or 39.1%; they released WWE 2K '22 & Tiny Tina)
Recurrent Consumer Spending (down $34m or 6.3%, TTWO mentioned "the consumer has seen a wide array of long-awaited, high-quality new releases in the market " so this probably meant Elden Ring)
General Takeaways:
ATVI is struggling due to lower engagement with Call of Duty, Warzone, and World of Warcraft
EA & TTWO were able to grow bookings due to new game releases compared to PY, but live services engagement was low likely due to competition from Elden Ring
Full Year Bookings Guidance:
ATVI: N/A
No guidance available since they're about to be acquired by Microsoft so who cares
Net Bookings could be higher at 9% – 12% growth if it wasn't for FX headwinds (3pp) & stopping sales to Russia (1pp)
The growth is due to lapping acquisitions from the prior year (Playdemic & Glu), live services growth especially for Mobile (Apex Legends Mobile launch, FIFA Mobile growth, and Lord of the Rings launch), and some major IP that we'll have to wait for more details on
Largest contributors expected to be NBA 2K, GTA Online, GTA V, Red Dead Redemption 2, Red Dead Online, Tiny Tina’s Wonderlands, Marvel’s Midnight Suns, and PGA Tour 2K23
This does not include Zynga and TTWO will share updated guidance at the next earnings call
General Takeaways:
EA & TTWO are expected to increase bookings by high single-digits to low double-digits despite a reopening economy
ATVI is irrelevant since they'll be acquired for $95/share
Latest Price Targets after updating my forecasts:
ATVI: $95
Based on Microsoft's acquisition price
My due diligence on why the deal will go through: My research on why ATVI is undervalued after Microsoft's acquisition : stocks (reddit.com)
EA: $174 – $177
20x multiple on FY '23 EBITDA of $2,400m – $2,445m
This is aligned with EA's guidance
I expect the company to be sold this year based on recent reports that EA is trying to sell itself to big tech. More details: Report: EA Was Deep In Merger Talks With NBCUniversal (kotaku.com)
TTWO: $120 – $130
25x multiple of FY '23 EBITDA of $601m – $644m
This is aligned with TTWO's guidance, which doesn't include Zynga. TTWO will share update guidance at the next earnings call
Could earn a higher multiple in the future since it's the largest metaverse company on earth that the stock market isn't fully appreciating, GTA 6 upside in a few years, & could be an attractive acquisition target for big tech that want a top player in gaming & metaverse with a digestible market cap (only $16 billion)
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