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Activision Blizzard (ATVI) and Take-Two Interactive Software (TTWO 1.21%) are massive names in the video game industry. They are responsible for some of the most iconic game titles of all time. However, these two companies have had somewhat differing fortunes of late.
Activision Blizzard
Activision Blizzard is a video game holding company with its headquarters in Santa Monica, California.
There are a number of brands that make up the company, with some of the leading video games globally coming from these business units. Major video game franchises under the Activision Blizzard umbrella include Guitar Hero, Call of Duty, Overwatch, Hearthstone, StarCraft, World of Warcraft, and Candy Crush Saga.
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After hitting the $83 mark in October 2018, Activision Blizzard saw its share price quickly drop back to the $45-$55 range. At the time of writing, the price is over 35% lower than the height it hit in October 2018.
While third-quarter revenue was better than forecast -- $1.28 billion versus $1.11 billion forecast -- this was still a significant year-over-year drop of $230 million.
Monthly active users (MAUs) have been steadily declining too, which is a cause for concern. In 2016, there were 491 million MAUs for all games, with this figure being 357 million in 2018. The main reason for the significant decline was King Digital, the maker of the Candy Crush Saga, losing 100 million MAUs as other mobile game publishers like Zynga continually push the competition in the space with leading titles like FarmVille and Zynga Poker.
Another blemish for Activision Blizzard was the recent fallout from an esports event. Activision Blizzard had suspended pro video game player Blitzchung for 12 months for giving support to Hong Kong protesters during a post-event interview. This caused massive controversy, with many alleging that Activision Blizzard was more focused on preserving its sales in China than supporting freedom of speech.
All of these negative factors don't bode well for Activision Blizzard investors. However, industrywide developments such as new console releases and increasing interest in esports will likely help boost the performance of Activision Blizzard in the short term.
Take-Two Interactive
Take-Two Interactive is also a video game holding company, and its headquarters is in New York City. There are two major video game publishers in its stable -- 2K and Rockstar Games. Some of the major video games in the Take-Two portfolio include Grand Theft Auto, Civilization, Borderlands, NBA 2K, BioShock, and Red Dead Redemption.
In contrast to Activision Blizzard, Take-Two Interactive is seeing significant growth over the past 12 months. Revenue increased year over year in fiscal Q2 to $858 million, up from $493 million. Net bookings increased for the same period from $583 million to $951 million.
This was driven by a number of new high-performing releases, which combat the idea that the company is overly reliant on its Grand Theft Auto franchise. The release of Red Dead Redemption 2 was a success, with sales continuing to be strong a year on from its release. To date, the game has sold 26.5 million copies.
NBA 2K20 also had a breakout launch, with its sales being the highest for any sports game in history for its launch month.
It is the recurrent consumer spending for the likes of in-game purchases and content where Take-Two really thrives. There was a 39% year-over-year rise in recurrent consumer spending. This segment accounts for 45% of all bookings, showcasing how integral the likes of in-game purchases are for video game companies.
Despite being 6 years old, Grand Theft Auto Online saw a 23% increase year over year in its recurrent spending. The addition of the Diamond Casino and Resort content package was a key driver for this increase. It was the largest release of content since the game's launch and showcases how Rockstar Games can still innovate and cash in on older titles.
This bodes well for investors, with management increasing revenue projections recently. The company certainly has diversified its offering and is no longer overly reliant on one single game for the bulk of its revenue.
Rising tides lift all boats
While Activision Blizzard and Take-Two Interactive are singing different tunes, they both stand to benefit from the growth of the overall gaming industry going forward.
A new generation of consoles is on the way in 2020. Sony is getting ready to launch the Playstation 5 and Microsoft plans to release the latest generation of the Xbox. Google parent Alphabet and Apple also plan to launch consoles in the near future. With new consoles come new games, which will be a big boost for all participating video game publishers.
After each major console launch, developers see a big boost in performance. In the year following major console launches in 2000, 2005, and 2013, Take-Two, Electronic Arts (EA -1.09%), and Activision shares outperformed the market by an average of 26%.
Esports are also growing rapidly each year, with 400 million people watching esports events in 2018. This audience figure is forecast to rise to 645 million by 2022. Activision Blizzard will benefit the most from this boom, with many of its games being leading esports titles.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Activision Blizzard, Alphabet, Apple, Microsoft, and Take-Two Interactive. Read the full disclosure policy here.
