06 May 2020

A Great Deal of Action at Video Game Giants

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What’s happening: US videogame giants Activision Blizzard and Electronic Arts reported stronger-than-expected earnings for the latest quarter after the closing bell on Tuesday.

What happened: With people staying home amid lockdowns in various countries across the globe, there has been a spike in demand for videogames. Many of the popular choices are multiplayer games that can be played without violating the social distancing norms.

Videogame sales in the US, including gaming hardware, software and accessories, have surged over the past two months, with the pandemic forcing millions to remain in their homes. Sales in March jumped to a record high in more than a decade. Despite this backdrop and both the leaders reporting upbeat quarterly results, investors were clearly in favour of one of these giants and the other witnessed a sharp decline in its stock in after-hours trading yesterday.

How were the results: Both Activision Blizzard and Electronic Arts surpassed Wall Street's expectations for the March quarter.

  • Activision reported adjusted earnings of 58 cents per share on net bookings (equivalent to net revenue excluding deferrals) of $1.52 billion for the quarter. This was significantly higher than the consensus estimate of 38 per share in earnings on bookings of $1.32 billion.
  • Electronic Arts announced its adjusted earnings at $1.08 per share on net bookings of $1.21 billion. This beat expectations of 98 cents per share in earnings on bookings of $1.19 billion.

Why it matters: Videogames have gained immense popularity and now even more so with people stuck at home amid coronavirus-induced lockdowns. Gaming giants like Microsoft and Steam have reported a steep rise in users.

Activision Blizzard witnessed a surge in users during the quarter, especially for its “Call of Duty: Modern Warfare” title. The company’s “Warzone” title also proved to be a major hit, pulling in 60 million users since its launch on March 10. Activision Blizzard also reported a whopping 75% increase in net ad bookings at its mobile gaming arm, King.

Rival Electronic Arts reported that its net income had doubled to $418 million during the quarter. The latest instalment of the company’s popular soccer game franchise “FIFA” boasted over 25 million users, while newly released “Star Wars Jedi: Fallen Order” recorded more than 10 million players.

Both companies expect these growth trends to continue. Activision guided to sales of $6.8 billion in 2020, while EA projected net sales to reach $5.525 billion in fiscal 2020. Despite this, EA warned that the full impact of the coronavirus crisis on its business remains unclear and difficult to forecast.

How the shares responded: Shares of Activision gained 5.5% in after-hours trading following the release of quarterly results, while EA’s stock nosedived 4.6%. Both stocks have so far been immune to the overall market sell-off, with Activision’s shares gaining more than 14% over the past month and EA’s stock rising over 16%. Given this stock performance, the sell-off in EA’s shares in extended trading yesterday may have been a result of profit taking by traders.

What to watch: Investors expect these videogame giants to continue announcing new releases to make the most of the favourable trends. Both Activision and Electronic Arts have set up work-from-home models, so that their teams can continue developing new upgrades to existing games and new titles.

The Markets Today

     

The US dollar will be in focus today, after rising against its major rivals in the previous session.

Context: The greenback climbed for a third straight session versus most of its rivals on Tuesday, on hopes of the reopening of some regions in the US and virus cases declining in some countries. Investor sentiment was also boosted by better-than-expected services data from the US.

Details: The US ISM’s non-manufacturing index dropped to 41.8 in April, from a reading of 52.5 in March. Despite this decline, the latest reading was much better than the estimate of 36.8. With services data beating expectations, the dollar index gained 0.2% to 99.714 on Tuesday.

New York Governor Andrew Cuomo disclosed plans to reopen some parts of his state, while California Governor Gavin Newsom also eased some restrictions for clothing stores and other retailers for curbside pickup from Friday.

The euro weakened against the greenback on Tuesday after the German Constitutional Court ruled that the ECB’s bond-buying infringed its mandate. The euro traded significantly lower following the news but recovered some losses by the end of the US trading session. The ruling, however, will not impact the central bank’s recent Pandemic Emergency Purchase Program. The euro was trading flat at $1.0838 in the European session today.

The dollar rose 0.7% against the Swiss franc to 0.9721, but was down 0.3% versus the Japanese yen in yesterday’s US trading session.

The greenback has a tendency to rise when the financial markets weaken. However, the US dollar has been moving in tandem with US stocks since the beginning of the coronavirus outbreak in March. Despite the pressure on the US economy, the dollar is still considered a safe-haven asset by investors globally and tends to gain during periods of volatility in the market.

What to watch: With the US dollar moving in-line with equities, investors will be keeping an eye on factors affecting the overall markets. Investors also await the ADP (Automatic Data Processing) employment report from the US. Though the ADP data is not the sole indicator of the Bureau of Labor Statistics’ jobs report, it does provide some idea of the overall condition of employment in the country.

The US private sector is expected to have witnessed massive job losses in April following the coronavirus pandemic. Economists are predicting 20 million job losses in the private sector last month, versus a loss of 27,000 jobs in March.

Other Markets: European indices were trading higher at 9:00 am GMT, with the FTSE 100, German 30 and French 40 up by 1.8%, 1.7% and 2.1%, respectively.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Brazil’s services and composite PMI, Argentina’s industrial production as well as the US MBA mortgage applications and EIA’s crude stockpiles.

 

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