Cowen Comments on Video Games Industry

Cowen & Company analyst Doug Creutz published an industry update on video games on Friday, November 22, 2013. Creutz noted, "While we remain bullish on the longer-term future of the video game sector, history suggests that console transitions spawn winners and losers. We believe that 2014 will be a critical year for determining the winners and losers of the next cycle, due to the high amount of new and attractive IP that is launching next year." The analyst commented on the new negative trends of console cycles and seasonal patterns. Console launch does appear to be successful as "Sony sold 1MM units in the U.S. on launch day, and is completely sold out at retail. We expect Microsoft on be on a similar if not better trajectory (which will really depend on launch quantities)." Cowen & Company downgraded Take-Two Interactive Software, Inc. TTWO from Outperform to Market Perform and lowered the price target from $22.00 to $17.00. Creutz assessed the competitive industry environment and believes the company is in a solid position for profitability given their development talent and successful franchises. Creutz did note, "whatever Take-Two launches next year is likely to be new, we think it could face a very difficult time competing against what already looks like a murderer‘s row of AAA titles in 2014. Additionally, whatever management‘s plans are now, keep in mind that Take-Two‘s titles almost always miss at least one release date." Creutz commented that Activision Blizzard, Inc. ATVI gained significant share in last-gen consoles launches. He noted that Destiny is likely to perform very well for Activision but has concerns that these sales may take away from Call of Duty. Cowen's EPS estimates range from $0.86 to $1.88 versus the $1.36 current estimate and $1.27 consensus. The analyst lowered Activision's price target from $21 to $19. The FY14 model estimates $5 billion for revenue and $1.36 in EPS versus consensus of $4.7 billion and $1.27, respectively. Cowen expects Electronic Arts Inc. EA to "launch a FPS in the fall that will at least be heavily influenced by Battlefield, though it may sport a different moniker." The EPS estimates range from $0.91 to $2.44 for EA versus the $1.68 current estimate and $1.47 consensus. the analyst noted that the "Swing factor in the earnings performance include what FPS and EA will launch this upcoming year and how performance will compare with Battlefield 4, the amount incremental FY15 titles will contribute, how big Titanfall will be, and how fast EA can grow its other digital media." Electronic Art's price target was lowered from $31 to $27. Take-Two Interactive Software closed at $16.85, -1.58% below Thursday's closing price. Activision closed down 0.74% and Electronic Arts closed at -1.07%.