The biggest winners in the market for the second quarter were pretty much any stock that enabled us staying at home. Whether it was work-from-home, streaming video, or even food delivery, if it was connecting goods and services to people who were in many cases forbidden by government mandate from leaving the house, it stood an excellent chance of gaining. Video games were no different here, and Activision Blizzard (NASDAQ:ATVI) turned in a second-quarter well beyond expectations.
A Pandemic Really Helps Keep People Glued to their Televisions
Activision Blizzard delivered a quarter so thoroughly outstanding that it not only beat Wall Street expectations for the quarter handily, but also, it could do what only a handful of companies could do, and that raises full-year guidance on its results.
It takes some impressive numbers to do that, and Activision Blizzard had them. The company saw revenue of $1.93 billion in the quarter, which was significantly ahead of the $1.69 billion expected. Earnings per share delivered similar advances, with $0.59 per share expected and $0.75 delivered.
Console revenue proved to be the biggest leader for the company, with revenue coming in at $655 million just for the second quarter. Mobile, interestingly, wasn't far behind with $622 million coming in. PC revenue followed at $482 million, and the company's distribution arms and esports operations brought in $173 million. Esports weren't immune to cancellations and rescheduling either, as was the case with the “League of Legends” championship event now set to run through October in Shanghai.
But It's the Forecast That Will Really Impress
As good as the numbers were for the second quarter, the company doesn't expect its fortunes to reverse with the arrival of the third quarter and people going back to work in large numbers. This was reflected in its third-quarter forecast, which featured adjusted earnings of $0.69 per share, and net bookings of $1.65 billion. If this comes to pass, Activision Blizzard's third-quarter will once again ravage expectations, which looked for $0.41 per share and $1.4 billion in bookings.
The annual forecast is even brighter; it's expecting adjusted revenue of a hefty $2.87 per share, and to bring in $7.63 billion total for the year. This is helped by a range of factors, including—and this may be the biggest surprise—the mobile business, which saw not only increases for its “Candy Crush” franchise, but also saw improved net bookings in advertising, a feat that even television networks couldn't achieve through all this.
Front-Loading? Probably Not.
It would be easy to dismiss these results and suggest that people were simply doing all their video game buying for the year during the second quarter. There's even some support for such an argument, as video game makers found themselves delaying titles back several months or more; the hotly-anticipated “Cyberpunk 2077” from CD Projekt Red got pushed back from its original date of April back to September, and then finally—perhaps realizing it would be releasing into the holiday season—to November. That wasn't the only major release to take a delay; “Vampire: The Masquerade—Bloodlines 2” was supposed to release back in the first quarter, but before that happened, got pushed back to “sometime in 2020.”
Those who don't routinely follow the video game market—or have kids who do—may not be aware that a new console generation is set to hit this November or so (most release dates are listed as “holiday 2020”, which means “sometime in the holiday season.”), and that will likely spark a fresh wave of sales, depending on what Activision Blizzard has in the way of launch titles for the new systems. So the notion that people simply bought what they were going to buy for the year loses some credibility considering that.
Still, things are looking up for video games, even if the larger economy is looking a bit shakier itself. It would be easy to think that overall economic weakness would preclude a lot of optional spending like that. It might, at least until after the election this November when we get a better idea of where the country is likely to go economically. But with the holidays closing in, a new console generation on the horizon, and people eschewing going out in favor of protecting themselves against a virus, the video game market may yet continue to succeed.
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The coronavirus crash has not discriminated in its victims. Large-cap, mid-cap, and small-cap stocks have all been dropping. No sector has been spared either. And while the market flipped from a bear market to a bull market in just three days, there’s still plenty of volatility to cause cautious investors to keep a healthy social distance from many stocks.
The pandemic that is forcing most of us to stay in our homes as much as possible (and if you’re not, please do) is unique for most of us. Demand hasn’t organically diminished. It’s been artificially suppressed. And that means that while it’s fair to say our economy will certainly experience a new normal, there will be a recovery.
And when it comes, many of the companies that were strong before the pandemic broke will continue to show their strength. Investors who are investing in these companies today will be the ones that experience the greatest gains when the recovery happens.
View the "8 Stocks Beaten Down by the Coronavirus That Are Too Good to Pass Up".