With E3 Upon Us, The Market Is Divided On Video Game Stocks

By Spencer Israel

The annual Electronic Entertainment Expo is the video game industry’s chance to take center stage and tout their latest products. But for investors, this year’s E3 serves as a reminder of how its biggest players have had dramatically different 2019’s.

Though it should be noted that all three stocks are well off their all-time highs from last year, as of the June 4 close the big three industry pure plays—Electronic Arts (up 19%), Take-Two Interactive (up 7%), and Activision Blizzard (even)—have diverged dramatically in their year-to-date performance.

On the more diversified front, Sony (who won’t be at E3) is up 3% in 2019, while Microsoft is up 30%. The biggest story out of E3 will likely come from Google (up 4% YTD) however, as the company is expected to unveil more details about its cloud streaming service.

Here are the catalysts we can expect from E3.

EA: An Apex Story

Coming off best March quarter ever, EA has been the undisputed winner of this space in 2019.

Sell-side firm Baird recently added the company to its “Fresh Pick” list, specifically citing “sentiment for EA has the highest likelihood of improvement coinciding with E3.”

EA is expected to provide updates on its Star Wars Jedi: Fallen Order game, which Baird also highlighted in their note, as well as plans to follow-up Apex Legends, the wildly successful battle royale game that the company said is expected to generate $300 million in 2020.

As UBS noted after the company’s most recent earnings report, “EA is a compelling mix of stable franchises, call options, and (if continued success is achieved) a potentially disruptive free-to-play option in Apex Legends.”

ATVI: Trying To Get Off The Mat

Activision Blizzard shares are down nearly 50 percent from its October highs, as a series of negative headlines has shaken investor confidence.

Revenues declined 7.1% on a YOY basis in the most recent quarter, a developer shakeup in its Call Of Duty franchise has investors fearing delays, and the company is still reeling from laying off 8% of its staff in February.

If there’s a silver lining to this story it’s the pipeline, as Goldman Sachs noted in an upgrade to Buy. Call Of Duty: Modern Warfare franchise is still due out October 25, and Activision Blizzard still has Overwatch and the Diablo franchises as staples.

They’ve also licensed Call of Duty Mobile, expected to launch in China later this year, to Tencent. The game already has over 10 million pre-registrations.

Though the company won’t have a booth at E3, it will still have a presence. That’s probably for the best, as investors are hungry for any good news out of these franchises.

Other Potential E3 Catalysts

Alphabet

As expected, Google’s Stadia presentation set the tone last week. The company released pricing and gaming details for its cloud-based gaming platform ($129 for the Founder’s edition) that was first introduced in March. Stadia will enable anybody to stream games over any internet-connected platform, which BAML Analyst Justin Post noted will remove barriers and allow more users to play.

Microsoft

Microsoft also made headlines over the weekend with its announcement that Project Scarlett (the codename for their latest console) will be available for the 2020 holiday season. Though they didn’t say what it would cost, the company said they’ve partnered with Advanced Micro Devices to develop custom processors, and that it would be 4x more powerful than the Xbox One.

Microsoft also said it would test its own cloud gaming platform, xCloud, in October, and announced updates to its Halo franchise and battle royale star Apex Legends.

NVIDIA

NVIDIA (up 12% YTD) has teased a release at E3, and reports have leaked that the company will announce updates to three of its graphics cards, specifically the RTX 2060, RTX 2070, and RTX 2080. Of course, whether the gaming industry (a core chip audience) or investors will react is another story entirely.

The author is long Microsoft and Google in his 401(k)

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