How Big Is Square’s Opportunity? And What’s Next for Game Giants Take-Two Interactive and Activision Blizzard?

In this segment from the Motley Fool Money podcast, host Chris Hill and senior Motley Fool analysts Jason Moser, Matt Argersinger, and Ron Gross start by reviewing the latest numbers from mobile-payments player Square (SQ -4.53%). While guidance was a hair weak, its key metric -- gross payment volume -- is moving rapidly in the right direction. But "war on cash" correspondent Moser points to PayPal (PYPL -1.67%) as an indicator of what's possible for Square.

Then, they put the focus on the video game business, with Take-Two Interactive (TTWO -1.34%) and Activision Blizzard (ATVI). Take-Two's fiscal first-quarter profits beat expectations, thanks to Grand Theft Auto, while fiscal Q2 numbers for Activision also beat thanks to Call of Duty -- but its shares slid, perhaps because it didn't raise guidance. The Fools look ahead in the industry.

A full transcript follows the video.

This video was recorded on Aug. 3, 2018.

Chris Hill: Good second quarter results from Square. Shares up despite Square's guidance being a little lower than analysts were hoping for. Jason Moser, the war on cash is alive and well.

Jason Moser: [laughs] The war on cash continues! I'll tell you, I saw a lot of Square equipment in many of the stores I visited in Rhode Island and Connecticut earlier this week. Gross payment volume is really the important metric to watch with a company like this. This tells us precisely the power of the network and how it's growing, because it draws a direct line to the question of that growth to the money that's actually flowing through all of their systems. GPV was up 30% from a year ago to $21.4 billion.

Now, you compare that to a company like PayPal, they just reported gross payment volume for the quarter of $139 billion. My reason for bringing that up, Chris, is simply to show you that not only is PayPal still light years ahead, but it also shows there's a tremendous market opportunity out there. Square is working on trying to capture that. Products like Square Appointments, Square for Retail, Square for Restaurants, they are really going after all sorts of angles there, getting these smaller businesses that need the benefit from these cheaper payments solutions and better technology to help them grow their businesses. Square is doing a great job in building this out.

There is a blueprint out there to be profitable in this line of work. Obviously, PayPal is the poster child for that. So, you can see how powerful the business can be if they keep doing what they're doing, and there's no reason to believe they shouldn't one day get there.

Hill: Video games stocks in the spotlight this week. First quarter profits for Take-Two Interactive were higher than expected thanks to its Grand Theft Auto franchise. Activision Blizzard's second quarter profits got a boost from Call of Duty, but shares falling despite that report. Take that in any order you want, Matty.

Matt Argersinger: I think it's a tale of expectations with these companies. Take-Two's results were just a lot better than expected from investors. Their annual guidance is increased because of that. Activision Blizzard also had a quarter, but just didn't raise their full-year guidance. I think there are some questions from analysts, that maybe they're expecting more of a tepid second half to the year.

But, for both of these companies, there's so much built into the next five or six months. You have Red Dead Redemption 2 coming in October. That's going to be Take-Two's biggest franchise release since the last Grand Theft Auto. For Activision, we have the annual Call of Duty game that's coming out in the fall, but also, a new iteration of World of Warcraft and Hearthstone and some other things. I think these companies are doing better than people thought right now, but it all hinges on how good holiday video game sales are, and they look like they're going to be pretty good.

Hill: I was going to ask about the holiday quarter. Is that the most crucial quarter for these types of companies? We've talked before that video games as a business tends to be very lumpy.

Argersinger: It's very lumpy. This tends to be the slowest period right now. We're in the summer, hopefully most kids aren't at home playing video games, although they're playing Fortnite.

Ron Gross: They are.

Argersinger: Yes, it's really all about that. Video games build their publishing schedule around the holidays.