It’s clear that video game stocks have done well during the stay-at-home culture of COVID-19. But for your investments dollars, Activision Blizzard (Activision Blizzard Stock Quote, Chart, News NASDAQ:ATVI) looks to be the better bet right now over Electronic Arts (Electronic Arts Stock Quote, Chart, News NASDAQ:EA), and Take-Two Interactive (Take-Two Interactive Stock Quote, Chart, News NASDAQ:TTWO) according to Kim Bolton, portfolio manager for Black Swan Dexteritas, who likes the new titles Activision Blizzard is set to release.
“We used to own Take-Two but then when it took off back in April and May, it reached our price target so we took it off,” says Bolton, president of Black Swan, who spoke on BNN Bloomberg on Monday. “But more recently we’ve actually added in Activision Blizzard, and the reason for that is it’s just got more of a runway in front of it because of the new games that are going to be coming out.”
“It’s always been sort of a toss between Take-Two, Electronic Arts and Activision Blizzard [but] we see the longer runway being in Activision Blizzard,” Bolton said. After a flatter 2019, all three gaming companies have performed superbly in 2020, with EA currently up 21 per cent year-to-date, Take-Two up 34 per cent and Activision Blizzard up 37 per cent.
As one might well imagine, business has been booming during COVID, with kids and parents alike stuck at home and happy to be spending time with their video game consoles.
The numbers don’t lie: in Electronic Arts’ latest quarter, for example, the company saw “extraordinary levels of player engagement,” according to management.
“Player engagement through the first quarter was exceptionally high and well above our forecast,” said COO and CFO Blake Jorgensen in a press release for the company’s fiscal first quarter 2021, ended June 30. “Our Stay Home, Play Together initiatives have been a strong tailwind for the business, as players look for safe and social entertainment in these difficult times.”
Player acquisition for one of the company’s flagship titles, FIFA, was up more than 100 per cent year-over-year, while Madden NFL was up 140 per cent. All that action brought EA’s quarterly revenue up to $1.459 billion from $1.209 billion a year earlier.
Similar results came from Activision Blizzard’s latest quarter, where management upped its guidance for the full 2020 year from $6.800 billion to $7.275 billion, saying the COVID-19 pandemic conditions should combine with the launch of new titles to deliver a strong second half.
Bolton says Activision Blizzard’s new titles could push up the share price, while the September market pullback makes the stock, which currently sits at $82 per share, even more attractive.
“We own it and we have a 12-month price target of $95.15,” Bolton said. “The pullback has given an opportunity for a lot of these stocks. So I would suggest buying about a quarter of a position and then add to it every $7 as it goes down.”
“The reason why we like Activision Blizzard over Electronic Arts and Take-Two is that the shelter-at-home conditions have allowed it to introduce millions of new users but, especially, they have two of their biggest releases in upcoming months, with a new Call of Duty and a new Pro Skater. So, they have the ability to accelerate and actually surprise when it comes to earnings season,” Bolton said.