The summer months are usually light periods for the video game industry. But with plenty of developments happening lately, the upcoming quarterly updates from game companies should be particularly noteworthy.
For starters, this is the year that Activision Blizzard (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA), and Take-Two Interactive (NASDAQ:TTWO) launched professional esports leagues based on best-selling franchises. And those leagues were all underway during the second quarter. At the same time, investors have been concerned lately about the potential of popular "battle royale" games to steal players away from these companies' flagship titles.
Here are the key things to watch for as each company reports earnings.
Electronic Arts' sports titles have been strong
EA will report its fiscal first-quarter earnings on July 26, after the market close.
FIFA 18 will be the key game to watch. Management is counting on interest in the real World Cup this summer to carry over to its esports version, called the FIFA eWorld Cup, which will hold its championship match in early August.
On the fourth-quarter conference call, management reported that nearly 18 million players have participated in the multiplayer competitive game modes in Madden and FIFA, which is an increase of 75% year over year. This is definitely esports fever in action.
As more players participate in online competitive modes, in-game spending is soaring. Live service revenue (which includes spending for the Ultimate Team digital card game in Madden and FIFA) surged 31% in fiscal 2018. Ultimate Team alone generated over $1 billion in revenue, or 21% of EA's total revenue last year. That's up from $775 million in fiscal 2017.
EA expects total revenue to grow 8.7% in fiscal 2019, due to ongoing growth in sports titles, esports, subscriptions, and two nonsports games releasing later in the fiscal year.
But the first quarter will be light, financially. The consensus analyst estimate calls for revenue to be down 3% year over year to $744 million. Management guided for a short-term spike in operating expense, which is expected to cause a drop in earnings per share, from $0.31 a year ago to $0.07 this year on a non-GAAP basis.
A big test for Take-Two
Out of the three game makers, Take-Two could be the most vulnerable to the growth of megapopular games like Fortnite. The company is very dependent on two games -- Grand Theft Auto V (GTA V) and NBA 2K -- for much of its revenue.
GTA V has been adding new players more than four years after release, and is now at 95 million units sold as of the last quarter. NBA 2K18 is Take-Two's best-selling sports title ever with over 9 million units sold, up 17% over the previous version in the annual series.
Despite the play time that battle royale games are gaining right now, Take-Two still managed to post 15% growth for in-game spending during the recent quarter, which is a healthy indicator that players are still actively engaging with Take-Two's games.
Nonetheless, when the company reports on Aug. 2 after market close, investors will want to hear about engagement trends with respect to GTA V, and whether it's holding up next to other popular games in the market. Also, NBA 2K League -- the esport based on that franchise -- launched in May, and investors will want to know how viewership is trending.
Management expects fiscal first-quarter revenue to be down about 11% year over year at the midpoint of guidance (which is $345 million to $395 million) due to a lack of new content for GTA V versus last year's quarter. They are calling for EPS to be about flat year over year, between $0.53 to $0.63.
Activision has momentum across the board
Activision Blizzard reports its second-quarter earnings on Aug. 2, after the market closes.
During the quarter, the company released new digital content for Call of Duty, Hearthstone, and Overwatch. Out of the three, investors will want to hear how player engagement in Overwatch is trending. Management reported previously that Overwatch League drove higher player engagement within the game in the first quarter.
It's playoff season for Overwatch League, so management should have some comments about the first season and any momentum it sees with advertising interest, etc. Activision just signed an exclusive multiyear deal with ESPN to cover playoff matches starting this year. That should help build awareness for the franchise, which has already built a sizable player base of almost 40 million.
Management's guidance for the second quarter calls for revenue to be down 4.7% year over year to $1.555 billion. EPS is expected to be down 19% to $0.26. Management typically gives conservative guidance, which the company usually beats, so keep that in mind.
Full-year revenue is expected to grow 4.8% to $7.355 billion. Blizzard is releasing a new World of Warcraft expansion next month, and there's a new Call of Duty game releasing this fall. Investors should listen for how pre-order trends are going for these two highly anticipated releases.
John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.