Ju raised his estimates and target prices on the big three players. Monday’s report aimed at looking past the near-term product valley. Ju also warned that the June quarter in video games is typically not one for material changes to estimates. That is due to significant product releases not happening until August, with the annual iteration of Madden NFL, and then into the Christmas shopping season.
On Electronic Arts Inc. (NASDAQ: EA), Ju believes it is poised to deliver the most upside versus expectations. It is after a raised awareness of soccer in the U.S. following the World Cup. Ju maintained his Outperform rating but raised the price target to $42 from $38 in the call. He said:
As cyclical tail winds fuel a rising tide lifts all boats scenario for packaged software sales, we continue to prefer names that are positioned to take advantage of the larger secular trend towards an online distribution model. … Our sensitivity analysis suggests that every incremental million units sold of FIFA 15 would result in approximately $0.08 to Fiscal Year 2015 earnings per share.
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Activision Blizzard Inc. (NASDAQ: ATVI) was also featured positively in Ju’s research report. The stock was reiterated as Outperform and the price target was $25 in the call. Ju said on Activision:
After spending some time with the playable version of Destiny at E3 we came away more confident in our FY14 unit volume assumptions. Given its polish and similarities to Diablo, albeit a first-person shooter format, we believe there is upside to the 9.9 million units we are currently modeling. Our sensitivity analysis suggests that a bull case scenario of 15 million units could add $0.21 to Fiscal Year 2014 EPS. Activision recently announced a partnership with NetEase to license its Diablo III PC game in China, a further testament to the company’s best-in-class digital content and strategy. While our model does not contemplate the release of this title, we would not expect meaningful contribution from the game until late Fiscal year 2015 at the earliest.
Take-Two Interactive Software Inc. (NASDAQ: TTWO) was maintained with a Neutral rating, and the firm’s price target was raised to $22 from $21 in the call. That is actually under the $23.25 current stock price. Ju said on Take-Two:
Take-Two recently announced a “hero-shooter” title called Battleborn for release in Fiscal year 2016. While it is encouraging that management is taking risks with the development and launch of new IP, visibility into the product pipeline at Take-Two remains opaque and we await more meaningful announcements regarding sequels for Red Dead, Bioshock and additional details with respect to the strategy for the digital business.
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