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Autumn brings holiday feel to video game stocks

20 September 2016 in Trading Ideas

Key Takeaways:

  • Spending on game software jumped 8 percent in August.
  • This season’s big releases appear to be more popular than last year’s.
  • Motifs mentioned: Online Gaming World
  • Stocks mentioned: Activision Blizzard (NASDAQ:ATVI), Sony(NYSE:SNE), Electronic Arts (NASDAQ:EA), Take-Two Interactive (NASDAQ:TTWO)

The last third of the year is often the strongest for the video game industry, as shoppers and investors alike begin to prepare for new titles that aim for the top of holiday wish lists.

This season is no exception.

Several game stocks have recently hit all-time highs – much as the broader market has done – and the bullishness may continue throughout the remainder of 2016.

Shares of Activision Blizzard (NASDAQ:ATVI), for example, sailed above $44 for the first time ever after the company’s three-day sold-out fan event in Los Angeles related to its high-selling “Call of Duty” franchise that featured a game tournament and previewed the upcoming release of the next title in the series – “Call of Duty: Infinite Warfare,” which is due out Nov. 4. As many as 10,000 fans attended the event.1

Activision also announced that it will offer a free virtual-reality game to owners of “Infinite Warfare” on Sony (NYSE:SNE) PlayStation 4 consoles and PlayStation VR headsets. The game called “Jackal Assault,” will put players into the cockpit of a Jackal fighter jet from “Infinite Warfare.”

The initial word from Wall Street was positive. Mizuho Securities analyst Neil Doshi raised his price target on Activision and reiterated his buy rating. “We attended Activision Blizzard’s sold-out Call of Duty XP event at the Forum in L.A., and walked away incrementally more positive on this year’s CoD title and the franchise in general,” Doshi said in a research report. “We played the new CoD game and yes, we like it. After spending more time with ‘Infinite Warfare,’ we see numerous signs of continued innovation that players will enjoy.”

Activision has had company in stirring the optimism of investors. Electronic Arts (NASDAQ:EA) has seen its stock rise in the wake of its latest “Madden NFL 17” game last month. The company also has two big-seller hopefuls coming out next month – “Battlefield 1” and “Titanfall 2”.2

In addition, shares of Take-Two Interactive (NASDAQ:TTWO) have jumped nearly 9 percent in the past month. The company said recently that “Creed” actor Michael B. Jordan will star in the role-playing MyCareer storyline in its pro basketball game, “NBA 2K17,” which will launch this week.3

All of this has been a boon for the rise of game-stock alternatives. The Online Gaming World motif has risen 10.1 percent in the past month. In that same time frame, the S&P 500 has decreased 2.2 percent.

In the past 12 months, the motif has gained 49.6 percent; the S&P 500 is up 9.3 percent.

As gamers increasingly move to digital platforms and buy fewer consoles, new software titles are clearly driving the industry. Researcher NPD Group said that while spending on game software, hardware and accessories grew by 1 percent in August from a year earlier, spending on software grew by 9 percent thanks to the release of new games “No Man’s Sky” and “Deus Ex: Mankind Divided,” which NPD said brought in three times the amount as last year’s new releases, “Gears of War Ultimate Edition” and the PS4 exclusive, “Until Dawn,” a game made exclusively for Sony’s PS4 console.4

Neither of those hits could outsell the latest “Madden” last month, however, it’s fair to point out that “Madden” sales this August were down 3 percent from last year.

Still, having diversity among the top-selling video games is unlikely a bad thing – and could very well help sustain the current rally in game stocks.

1,2,3Patrick Seitz, “Video Game Publisher Stocks Notch Record Highs,” investors.com, Sept. 2, 2016, http://www.investors.com/news/technology/click/video-game-publisher-stocks-notch-record-highs/, (accessed Sept. 18, 2016).

4Jeff Grubb, “August 2016 NPD: Madden, No Man’s Sky lift summer spending,” venturebeat.com, Sept. 15, 2016, http://venturebeat.com/2016/09/15/august-2016-npd-madden-no-mans-sky-lift-summer-game-spending/.