What You Missed This Week in Video Games

Analysts raise price targets on Take-Two after quarterly report

“Game On” is The Fly’s weekly recap of the stories powering up or beating down video game stocks.

EU CLEARS MICROSOFT-ACTIVISION DEAL: 

Early last week, the European Commission approved the proposed acquisition of Activision Blizzard (ATVI) by Microsoft (MSFT). The approval is conditional on full compliance with the commitments offered by Microsoft. “The commitments fully address the competition concerns identified by the Commission and represent a significant improvement for cloud gaming as compared to the current situation,” the agency said in a statement. The Commission said its market investigation indicated that Microsoft would not be able to harm rival consoles and rival multi-game subscription services. “At the same time, it confirmed that Microsoft could harm competition in the distribution of games via cloud game streaming services and that its position in the market for PC operating systems would be strengthened,” it added. To address the competition concerns identified by the Commission in the market for the distribution of PC and console games via cloud game streaming services, Microsoft offered “comprehensive” licensing commitments, with a 10-year duration, according to the European Commission.

Meanwhile, the U.K.’s Competition and Markets Authority responded to the European Commission approval of the deal, saying, “The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming. The CMA concluded that cloud gaming needs to continue as a free, competitive market to drive innovation and choice in this rapidly evolving sector. Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next 10 years. They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal. While we recognise and respect that the European Commission is entitled to take a different view, the CMA stands by its decision.”

Later in the week, China’s State Administration for Market Regulation, or SAMR, unconditionally approved acquisition, two sources familiar with the situation told Dealreporter’s Shirley Feng, Lisha Zhou and Diane Alter.

CIRCANA: 

Circana analyst Mat Piscatella said that April consumer spending on video game content, hardware and accessories in the U.S. reached $4.1B, a 5% drop when compared to a year ago. A 6% decline in April spending on video game content offset 7% growth in hardware. Year-to-date consumer spending on video game content, hardware and accessories fell 2% when compared to the same period in 2022, to $17.7B. Spending on video game content declined 6% in April when compared to a year ago, to $3.6B. All segments of content spending fell year-on-year in April except for non-mobile subscription content spending, which increased 2% versus April 2022.

Video game hardware spending grew 7% when compared to YA, to $367M, Piscatella noted. This is the highest video game hardware spend for an April month since the $420M reached in April 2020. Double-digit percentage growth in both PlayStation 5 (SONY) and Switch (NTDOY) dollar sales offset declines on other platforms. Year-to-date hardware spending is now 18% higher when compared to the same period in 2022, at $1.8B. PlayStation 5 was the best-selling hardware platform in dollar sales during April, while Switch led the market in units sold. PlayStation 5 leads the 2023 hardware market year-to-date across both units and dollars. Accessories spending during April was flat when compared to a year ago, at $158M. The PlayStation 5 Dual Sense Edge Wireless Controller Black was the best-selling accessory in dollar sales for both April and 2023 year-to-date.

On the software side, Piscatella said that Electronic Arts’ (EA) “Star Wars Jedi: Survivor” was the best-selling premium game of April 2023, instantly becoming the 4th best-selling game of 2023 year-to-date. The title featured 2 days of sales in the April tracking month. Embracer’s (THQQF) “Dead Island 2” debuted as the 2nd best-selling premium game of April 2023, ranking 6th in year-to-date dollar sales. Seven of the top fifteen best-selling games of April 2023 were new releases. Other top sellers for the month in dollar sales were Sony’s “MLB The Show 23,” Capcom’s (CCOEY) “Resident Evil 4,” Activision’s “Call of Duty Modern Warfare 2,” and Warner Bros. Discovery’s (WBD) “Hogwarts Legacy.”

TAKE-TWO RESULTS: 

Last Wednesday, Take-Two (TTWO) reported upbeat Q4 revenue yet provided a downbeat outlook for net bookings for Q1 and FY24. “We finished fiscal 2023 with momentum. Our fourth quarter Net Bookings were $1.4 billion, above the high end of our guidance range, driven by Grand Theft Auto V and Grand Theft Auto Online, Red Dead Redemption 2, and Zynga’s mobile portfolio,” said Strauss Zelnick, Chairman and CEO of Take-Two. “We also issued guidance for Fiscal 2024, which includes Net Bookings in the range of $5.45 to $5.55 billion. Our forecast reflects the challenging consumer backdrop, as well as an extension of the development timelines for several high-profile, long-awaited titles in our pipeline. We believe that we will enter our next phase of growth in Fiscal 2025, as we plan to deliver several groundbreaking titles that we anticipate will set new standards of quality and success and enable us to deliver over $8 billion in Net Bookings and over $1 billion in Adjusted Unrestricted Operating Cash Flow. We expect to sustain this momentum with additional growth in operating performance in Fiscal 2026. After numerous years of investment and creative development, we are excited about this next chapter for Take-Two. As we execute on our strategy and release what we expect will be an array of hit titles, we believe that we will grow our scale and margins, generating industry-leading returns for our shareholders.”

Following the release, more than ten securities analysts raised their price targets on the shares, with BMO Capital saying the results were overshadowed by the telegraphing of a fiscal 2025 release of the long-awaited “Grand Theft Auto VI,” which is a year earlier than the firm anticipated. The firm added that Take-Two benefits from positive video game industry tailwinds, including the transition to digital distribution offering higher margins and the opportunity for incremental add-on sales and multi-player online services.

Click here to check out recent Media Buzz Sentiment on Take-Two as measured by TipRanks.

OTHER STORIES TO WATCH:

• Nintendo said that “The Legend of Zelda: Tears of the Kingdom,” which launched earlier this month exclusive on Switch, sold over 10M units worldwide in its first three days of availability [read more]
• Warner Bros. Discovery’s NetherRealm Studios announced “Mortal Kombat 1,” a new entry in the long-running series, out September 19 for PC, Xbox Series X/S, PS5, and Switch [read more]
• Ubisoft’s (UBSFY) planned “Star Wars” game could arrive in early 2024, Kotaku reports [read more]
• Microsoft said that PC games from Xbox Game Studios and Bethesda will be available to play on streaming platform Boosteroid starting June 1 [read more]

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Originally Posted May 23, 2023 – What You Missed This Week in Video Games