Video Game Publishers E3 Recap - Union Securities · 2019-06-18 · Video Game Publishers –E3...
Transcript of Video Game Publishers E3 Recap - Union Securities · 2019-06-18 · Video Game Publishers –E3...
The 2019 E3 (Electronic Entertainment Expo) trade
event took place in Los Angeles last week.
It was an opportunity for players in the video game
industry to present new games and hold press
conferences and investor meetings to outline their
strategy.
The event failed to provide a catalyst for a rebound of
the sector but provided some insight into the next
console generation coming for Christmas 2020.
Hot topics were:
New Game launches and the production pipeline,
The shift to digital downloads and game
streaming, following the introduction of Google
Stadia and a partnership in cloud and AI between
Microsoft and Sony,
In-game digital content fatigue and the impact of
Fortnite and free-to-play games,
The E3 showed that the new Games pipeline is relatively
poor in 2019. R&D expenses and capitalized
development costs remain high pointing to a slate a new
games launches in 2020, in line with the release of next-
generation consoles at the end of 2020 (PS5 and Xbox
Scarlett).
Video Game Publishers – E3 Recap
June 18, 2019 2
Actor Keanu Reeves introducing CD Projekt Cyberpunk 2077 game at E3
UbiSoft streaming services presentation at E3
Video Game Publishers – E3 Recap
We continue to believe 2019 is a year of adjustment for
the industry to:
review their cost base,
refocus their product portfolio,
accelerate the move to digital distribution and
cloud gaming,
get ready for the next-generation of consoles.
Our key investment thesis for the industry remains valid:
A strong top-line growth driven by mobile and
increased consumer interest in video games;
Improving margins through digital sales, cloud
gaming, and increased monetization of existing
franchises;
A reasonable valuation and some potential M&A
within the industry or from players interested in
expanding their content offering (Alphabet,
Facebook, Tencent, Verizon, Vivendi, Disney,
Microsoft, Sony, Amazon, etc…)
Expect a sharp rebound in sales an earnings in the
coming quarters on the back of new product launches,
cost cuts and low guidance from publishers.
-> Stay Long Video Games Publishers
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Microsoft Keynote
Electronic Arts FIFA Volta
Video Game Publishers – E3 Recap
Activision failed to provide any meaningful information.
The increased monetization of Call of Duty remains the
company largest opportunity in particular through a
mobile version of the game.
New games should be announced in November at
BlizzCon 2019.
Activision will invest in marketing at King (Candy Crush)
to re-energize the brand.
Ubisoft New games such as Ghost Recon:Breakpoint
were well received but the announcement of the Uplay+
subscription failed to convince investors.
The 15% increase in R&D also raised some questions on
profitability
Ubisoft stock fell following the recent sale of shares by
the founding family whose stake has dropped below 18%
(and 25% of the voting rights). The move is likely linked
to personal projects rather than a lack of faith in the
company (only one year ago, the family blocked a
takeover attempt by Vivendi).
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Activision - Daily
Ubisoft - Daily
Video Game Publishers – E3 Recap
Electronic Arts introduced FIFA Volta, a street soccer
mode designed to attract new players while the Star
Wars Jedi: Fallen Order will be the major holiday release.
One big unknown remains the progress of Fortnite
competitor Apex as significant revenue contributor.
Take Two seems to have the best pipeline with the Red
Dead online version coming this summer and the
potential to leverage NBA 2K in a cloud version.
In addition to the Xbox Scarlett, Microsoft announced
60 games including 14 coming from the company’s
internal Xbox game studios. It also announced a test
phase this Autum of a new xCloud streaming service.
While gaming represents only 8% of Microsoft revenues
(about $10bn p.a.), it represent a strong growth
opportunity for the Tech giant to be both a leading
content provider as well as a leading platform for gaming
publishers.
Microsoft is one of our core Global Leaders holdings
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Take Two - Daily
Electronic Arts - Daily
Video Game Publishers – Comp Sheet
Description
NameMkt Cap
($bn)
Revenue
($bn)Sector Sub-Industry
Country
NameCurrency
Microsoft 1014.9 110.4 Information Technology Systems Software UNITED STATES USD
Activision Blizzard 34.9 7.5 Communication Services Interactive Home Entertainment UNITED STATES USD
Electronic Arts 27.6 5.0 Communication Services Interactive Home Entertainment UNITED STATES USD
Take-Two Interactive 12.4 2.7 Communication Services Interactive Home Entertainment UNITED STATES USD
Ubisoft 8.3 2.1 Communication Services Interactive Home Entertainment FRANCE EUR
Konami Holdings Corp 6.8 2.4 Communication Services Interactive Home Entertainment JAPAN JPY
CD Projekt SA 5.2 0.1 Communication Services Interactive Home Entertainment POLAND PLN
Square Enix Holdings Co Ltd 3.9 2.4 Communication Services Interactive Home Entertainment JAPAN JPY
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Valuation Value Creation
NameEst. PE - 12M
Fwd
Est. PE - 24M
Fwd
Est.
EV/EBITDA
Est.
Price/Sales
Est.
EV/SalesEst. RoE
Trailing
ROE
Trailing
ROIC
Sales
Growth (3y
avg.)
EPS
Growth (3y
avg.)
LT Exp.
EPS
CAGR
Asset
Turnover
Microsoft 26.1 22.7 15.8 7.4 7.0 37.0% 40.1% 23.2% 5.9% 22% 13% 48%
Activision Blizzard 19.4 16.7 12.7 5.2 4.9 11.9% 16.4% 13.9% 18.3% 165% 7% 40%
Electronic Arts 19.9 17.9 12.5 5.3 4.4 24.4% 20.5% 16.6% 4.2% -3% 13% 56%
Take-Two Interactive 24.6 22.0 14.4 4.6 4.0 18.7% 18.9% 11.8% 25.2% na 9% 67%
Ubisoft 21.2 18.5 7.4 3.2 3.3 29.9% 11.1% 6.8% 10.0% 5% 36% 61%
Konami Holdings Corp 19.0 16.6 8.5 2.7 2.2 12.9% 12.9% 18.4% 1.9% 60% na 71%
CD Projekt SA 24.7 14.5 17.8 14.1 13.7 41.2% 10.8% 10.8% -23.1% -31% na 34%
Square Enix Holdings Co Ltd 18.1 15.2 7.5 1.5 1.1 10.7% 9.3% na 7.6% 1% na 99%
Video Game Publishers – Comp Sheet
Cash Flow Generation
Name
Est.
Dividend
Yield
Dividend
Payout
Ratio
FCF Margin
(3y avg.)FCF Yield
Est.
Gross
Margin
Est. EBIT
Margin
Est. Net
Margin
CFO to
Sales
Microsoft 1.5% 45% 30% 3.3% 65% 34% 28% 40%
Activision Blizzard 0.8% 15% 27% 4.6% 72% 34% 27% 24%
Electronic Arts 0.0% 0% 30% 5.1% 77% 31% 27% 31%
Take-Two Interactive 0.0% 0% 23% 6.2% 57% 21% 19% 32%
Ubisoft 0.0% 0% 42% 12.9% 85% 22% 17% 53%
Konami Holdings Corp 1.5% 46% 12% 3.7% 39% 20% 13% 19%
CD Projekt SA 0.1% 92% 41% 0.4% 74% 65% 50% 37%
Square Enix Holdings Co Ltd 1.2% 29% 6% na 46% 11% 8% 5%
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Analyst Recommendations Risk Profile
Name CoverageConsensus
Rating (0 to 5)
Consensus
Target PriceTarget %
ATM
Implied Vol
3 M
90%
Implied Vol
3 M
Debt to
Assets
Microsoft 39 4.7 143.18 8.1% 22.4% 25.7% 34%
Activision Blizzard 35 4.3 53.38 17.0% 37.1% 39.1% 15%
Electronic Arts 35 4.3 112.23 21.0% 35.4% 37.3% 11%
Take-Two Interactive 24 4.8 121.50 10.1% 35.6% 37.4% 0%
Ubisoft 17 3.9 82.20 24.6% 39.8% 42.2% 41%
Konami Holdings Corp 15 4.3 5896.36 14.9% na na 5%
CD Projekt SA 16 3.8 233.16 13.9% na na 0%
Square Enix Holdings Co Ltd 14 4.3 4330.91 25.7% na na 4%
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