PS4, Xbox One sales help EA, Take Two stocks hit 52-week highs
It’s a golden era for game publishers and their bottom lines, and it’s thanks to a monstrous start for the PlayStation 4 and Xbox One generation.
Console gaming on the rise
Madden maker Electronic Arts’s stock price surpassed $50 today for the first time since 2008. Yesterday, Grand Theft Auto V publisher Take-Two’s stock price hit an all-time high of $29.92. Even Activision, which had a rocky 2014 thanks to one underperforming game, is already starting to bounce back. Earnings for these companies are on the rise, and 2015 has even more potential. The console gaming business is worth nearly $50 billion worldwide, and EA, Take-Two, and Activision are three of the top companies best positioned to capture that cash.
EA is riding a wave that began back in 2013 when its previous chief executive officer, John Riccitiello, stepped down. That surge got a supercharge when the new consoles came out and started selling like mad. The number of new PS4s and Xbox Ones on the market is already approaching 30 million, and EA made sure that it was ready with a number of high-quality games to support gamers on those systems. Having a library of desirable games has paid dividends for EA, as the people who own the newer consoles are desperate for software to justify their new purchases. That led to both Madden and FIFA ending 2014 as top-10 selling games at retail int he U.S.
Above: Everyone is trending up as the market sees dollar signs.
Image Credit: Google Finance
Take-Two is benefiting in a similar way. While it didn’t release a new Grand Theft Auto this year, the company did port GTA V to the PS4 and Xbox One in time for the holidays. That game ended up as the fourth best-selling retail release in the U.S., and the publisher’s NBA 2K15 was No. 7 on that list.
“Console economics have become quite good,” Cowen & Company analyst Doug Creutz told GamesBeat. “EA is hitting record earnings, and Take-Two is hitting record non-GTA year earnings.”
In fact, it’s notable that Take-Two’s stock price is higher now despite GTA V setting sales records on Xbox 360 and PlayStation 3 in 2013. The market is responding to the fact that the immediate future for console publishers is bright, and Take-Two is proving that it knows how to take advantage of that.
Activision is a bit of an outlier here, but that’s primarily because it has had so much success over the last decade and expectations were so high. The publisher’s stock is trading at around $20.75, which is not a 52-week high. It is, however, a bounce back from recent lows around the $18 mark. In a note to investors, Creutz says that he thinks the bad news is coming to an end for the publisher, and this bounce back will roll into a strong 2015.
Beyond the console
But it’s not just the PS4 and Xbox One that has the market in love with game publishers. All three companies have made big strides to insulate themselves from exposure to the ups and downs of the console cycle.
EA has a healthy and growing mobile business, and it’s getting stronger as the company has found ways to combine its popular franchises, like Madden, free-to-play and games-as-a-service elements.
Activision has a growing PC free-to-play business with the digital card battler Hearthstone: Heroes of Warcraft and the upcoming League of Legends-like Heroes of the Storm. The company has also opened up its test version of Call of Duty: Online in China, which has the potential to make the publisher hundreds of millions of dollars (if not billions).
All of this is important, since while the short-term prospects of console gaming looks strong — no one really knows what the future of consoles looks like.
“While video game publishers still have individual product cycles,” said Creutz. “Worry more about an inevitable earnings decline in a few years since the console cycle has, in our view, become as obsolete as the Sega Saturn.”
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