Video game makers may trounce estimates
Tepid holiday sales forecasts from two of the three major U. S. video- game producers have not dampened investors’ confidence in one of the past decade’s major stock market success stories for a simple reason: they almost always beat them.
In f i ve bumper years, Activision Blizzard Inc., Electronic Arts Inc. and Take- Two Interactive Software Inc. have mushroomed in total market value from US$ 14 billion in 2012 to almost US$ 100 billion on Friday.
In that time, Reuters data shows they have exceeded their initial annual revenue expectations 87 per cent of the time and sector analysts think a strong slate of releases will see them do so again in 2018.
“None of them do a good job at managing expectations. So they frequently guide below consensus,” said Wedbush Securities analyst Michael Pachter.
“Their guidance will prove to be well below actual results.”
Powered in part by the shift into gaming on mobile devices, PricewaterhouseCoopers predicts gaming industry sales will grow an average of 8.2 per cent annually between 2017 and 2021.
That makes the market far faster- growing than any entertainment and media segment outside of video streaming businesses like Netflix, Amazon or Spotify.
Of the 15 annual sales estimates issued by the three firms since 2012, 13 have been below the final numbers. The majority of results have beaten expectations by at least three to four per cent while Take-Two on two occasions topped its own forecasts by more than 25 per cent.
The gap in valuations to Netflix, however, is huge.
Share price- to- earnings ratio, a measure of how expensive a stock is for investors, stands at 23.7 times for Activision, 23.24 for Take Two and 21.30 times for EA, according to Thomson Reuters data.
While those multiples compare solidly with Disney’s 16.73 and Time Warner’s 13.94, they are dwarfed by Netflix’s 83.78 times.
That is some reflection of the streaming company’s overwhelming public profile over the past two years, but also jars with the picture of two segments of the media world growing for similar reasons.
PricewaterhouseCoopers head of Global Advisory for Entertainment and Media, Christopher Vollmer, says the games sector has multiple sources of growth that should deliver a number of strong further years of expansion.
“Video gaming has become highly desirable entertainment for many consumers. It appeals to today’s consumer that wants a high quality entertainment experience that is interactive, personalized and, increasingly social,” he said.
“The video game industry is at a favourable point in its business cycle,” a Hilliard Lyons analyst wrote Nov. 8. “Star Wars ... and other titles from EA’s portfolio, position the company well for the coming holiday sales period.”