Analyst: The E3 Hype Continues With Strong Gaming Outlook

Grand Theft Auto V

In June, Majesco (NASDAQ:COOL) announced worse-than-expected Q2:14 results. The Wedbush Video Game Index, our market cap-weighted index of video game companies, was up 4 percent for the month of June, reflecting strong financial markets and a positive reaction to this year’s E3. The Russell 2000 and S&P 500 were up 5 percent and 2 percent, respectively, reflecting positive domestic economic indicators and a hot IPO market. Take-Two (NASDAQ:TTWO) had the best month among the covered publishers, with its shares up 8 percent after announcing that Grand Theft Auto V would be available for the next-gen consoles and PC this fall. Activision Blizzard (NASDAQ:ATVI) and GameStop (NYSE:GME) shares were up 7 percent, with the former benefiting from increasing Destiny hype ahead of its September release, and the latter helped by an improving industry outlook. Ubisoft had the worst month, down 8 percent, pulling back after hitting a 52-week high earlier in the month. On a constant f/x basis, the Index was up 5 percent. Excluding Nintendo, it was up 4 percent.

Key June Headlines

o 6/2 – Nintendo announced that Mario Kart 8 (Wii U) sold over 1.2 million units across the Americas, Europe, and Japan in its first weekend, making it the fastest selling Wii U game of all time.

o 6/3 – Ubisoft announced that Watch Dogs (PS3, PS4, Xbox 360, Xbox One, PC) sold-through over 4 million copies in its first week, making it the video game industry’s best selling new IP at launch and Ubisoft’s best-selling game ever in its first week. Previously, on May 28, it announced that the game had sold through more copies in its first day than any other title in the company’s history.

o 6/9 – 6/12 – The E3 Electronic Entertainment Expo video game conference was held in Los Angeles, California.

o 6/9 – Majesco announced worse-than-expected quarterly results.

o 6/9 – Take-Two’s Grand Theft Auto V for the PS4 was revealed at the Sony PlayStation E3 Press Conference. A day later, Rockstar Games announced that the game would be released for the PS4, Xbox One, and PC in the fall. The game was previously released for the PS3 and Xbox 360 last September. In May, Take-Two announced that the game had sold-in over 33 million units for current-gen consoles.

o 6/10 – Nintendo revealed Amiibo, a near-field communication-based line of figurines in development for the toys-to-life category. The Amiibo concept appears to be very similar to Activision Blizzard’s Skylanders and Disney’s (NYSE:DIS) Disney Infinity toys. The first Amiibo figurines are expected to be released at the holidays.

o 6/11 – Majesco announced a 1-for-7 reverse common stock split, effective on June 13. Management had previously announced that it intended to effectuate a reverse stock split to remain compliant with NASDAQ’s $1.00 bid price requirement for continued listing. On July 2, the company announced that it had regained compliance.

Call of Duty: Advanced Warfare

Key July Events

o 7/10 – Ubisoft to report Q1:15 sales.

o 7/21 – 25 (est.) – Zynga (NASDAQ:ZNGA) to report Q2:14 results. ⇑ ZNGA

o 7/22 – EA to report Q1:15 results.

o 7/28 – 8/1 (est.) – Activision Blizzard to report Q2:14 results. ⇑ ATVI

o 7/28 – 8/1 (est.) – Nintendo to report Q1:15 results. ⇓ 7974.JP

o 7/28 – 8/1 (est.) – Take-Two to report Q1:15 results.

Last month, we attended the E3 Expo in Los Angeles, and met with a number of companies presenting products at the show, including Activision Blizzard, DeNA, Electronic Arts, GameStop, Microsoft, Nintendo, Sony, Turtle Beach, Ubisoft, and Zynga. The show was once again well attended, with the Los Angeles Convention Center hosting close to 50,000 attendees and 200 exhibitors from over 100 countries.

We were impressed by the graphical quality of the games on display, with several showing off the power of the next-generation consoles from Sony and Microsoft. In particular, we were impressed by Activision’s Call of Duty: Advanced Warfare, Ubisoft’s Far Cry 4, and Assassin’s Creed Unity, and EA’s (NASDAQ:EA) sports titles, all showing off features of the next-generation consoles that were not available in prior generations. We viewed Call of Duty as the best looking game of the show, and thought that Far Cry was the most interesting. Audience reaction to Assassin’s Creed Unity was overwhelming, with co-op game play appealing to a large number of those in attendance.

Michael Pachter is an analyst at Wedbush Securities. 

Want more great content like this? Sign up here to receive the best of Cheat Sheet delivered daily. No spam; just tailored content straight to your inbox.