Earnings dominated video game space last week with Sohu.com Inc SOHU, Changyou.com Ltd. CYOU, Nintendo NTDOY and Microsoft MSFT reporting quarterly results. Meanwhile Nintendo also struck a deal with McDonald's Corp. MCD for Happy Meal toys.
Recap of the Developments
1. Earnings
Sohu.com Inc: Sohu reported first-quarter 2017 non-GAAP loss of $1.75 per share, much wider than year ago quarter’s loss of 56 cents. Shares were down 6.44% yesterday.However, Sohu’s revenues of $374.1 million beat the Zacks Consensus Estimate of $366.7 million. On a year-over-year basis, revenues decreased 8.3% due to lower revenues from advertising and online gaming. RMB depreciation had a big impact on results, adds management.
For the second quarter of 2017, Sohu expects revenues in a range of $390–$420 million.The company expects non-GAAP loss per share between $1.80 and $2.05. Currently, Sohu carries a Zacks Rank #3 (Hold).
Changyou.com Ltd: Changyou reported adjusted first-quarter 2017 earnings of 56 cents per share that topped the Zacks Consensus Estimate of 54 cents. The company reported revenues of $119.9 million, down 7.7% year over year. Online game revenues came in at $85 million, down 17% year over year. Online advertising revenues declined 26% year over year to $6 million. Changyou.com carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here
Microsoft Corp: Microsoft’s third-quarter fiscal 2017 adjusted earnings of 73 cents and revenues of $23.56 billion easily beat the Zacks Consensus Estimate. Though gaming is a very small part of the company’s business, Xbox is an important aspect of the overall video game industry. Microsoft’s gaming revenues grew 6% in constant currency. Xbox Live monthly active users were up 13% to 52 million active users. During the quarter, the company unveiled Project Scorpio, its upcoming gaming console that supports 4K technology.
Nintendo Co Ltd: Nintendo reported consolidated results for the year ended Mar 31, 2017. Reportedly, for the year, sales were down 3% to ¥489.1 billion. For 2018, the company projected revenues to be ¥750 billion and operating income to be ¥65 (up 121% year over year). Nintendo said that its much anticipated new console—Switch, released on Mar 3, 2017—has sold 2.74 million units. Its new game, The Legend of Zelda: Breath of Wild Fire, has sold 2.76 million units.
Switch, priced at $300, combines the functionalities of both conventional consoles and handheld devices. It is designed to attract casual gamers who are increasingly using mobile. After staying away for long, Nintendo has finally started focusing highly on mobile games now. Last year’s smash hit, Pokémon Go, gave it the much needed impetus. Going ahead, there are many games like Mario Kart 8 Deluxe (April), ARMS (June), Splatoon (July) and Super Mario (Nov-Dec 2017) that should boost Switch sales.
2. Per media reports, Nintendo also struck a deal with McDonald's to offer its video game characters as part of the Mc Donald’s Happy Meal for a limited time period. Reportedly, from Apr 26 to May 22, kids across the U.S will find Mario, Luigi, a Red Koopa Shell, Princess Peach, Bowser, Yoshi, Invincible Mario, and 1-Up Mushroom with their Happy Meals. In the 90s, Nintendo toys were a regular Happy Meal fixture. However, changing times gave way to newer and more popular toys.
Nevertheless, Nintendo is back with a bang. Last year’s Pokémon go changed it all for the videogame company. Success of mini NES and Switch is also doing wonders for the company.
At present Nintendo sports a Zacks Rank #2 (Buy).We note that Nintendo has massively outperformed the Zacks Toys-Games-Hobbies industry in the last one-year. While the industry gained 35%, the stock returned 75.41%.
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Performance
The following table shows the price movement of the major video game companies over both the past five trading days as well as the last six months:
|
Company |
Last 5 Days |
Last 6 Months |
|
ATVI |
7.21% |
18.73% |
|
EA |
5.86% |
13.93% |
|
GLUU |
1.33% |
13.43% |
|
MSFT |
5.11% |
13.59% |
|
NTES |
0.00% |
-0.51% |
|
TTWO |
9.77% |
40.02% |
|
ZNGA |
2.53% |
2.16% |
Over the last five trading sessions, Take Two Interactive TTWO was up 9.77%, whereas NetEase NTES was flat.
In the last six-month period, Take Two Interactive surged the most (37.91%). The company continues to benefit from its popular offerings like GrandTheft Auto V and Grand Theft Auto Online (though sales are slowing down), along with its other releases like NBA 2K17. In fact, higher sales of the digital version of the games add to the company’s margins. The company continues to expect growth in digital revenues, driven by higher sale of full game downloads and increase in recurrent consumer spending.
Take Two recently forayed into free-to-play games space with the acquisition of game developer, Social Point. The acquisition will help it boost its performance going ahead. Also, the company is well positioned to benefit from the highly anticipated launch of Red Dead Redemption 2 later this year.Take Two also inked a partnership with NBA to launch NBA 2K eLeague, making it the “first eSports league operated by a U.S. professional sports league.” The NBA 2K league will be functional in 2018.
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