Brean Capital Comments On Video Game Stocks

On Friday, analysts at Brean Capital offered commentary on three video game stocks.

• Activision Blizzard Inc. ATVI Buy rating; $26 price target.
• Electronic Arts Inc. EA Buy rating; $54 price target.
• Take-Two Interactive Software, Inc. TTWO Buy rating; $32 price target.

Todd Mitchell offers reasons for the positive view for video game stocks:

Video game sales were better-than-expected and ended the year strong, declining only 2 percent from 2013, 6 percent less than expected. Consequently, Brean analysts are anticipating upside to December quarter guidance for these companies.

In addition, bundled hardware and software sales showed strength, “We attribute upside to our estimates for December sales to stronger-than-expected traction for bundled hardware/software promotions, which are accounted as hardware sales and encompassed 71% of all console units sold according to NPD.”

Lastly, strong fundamentals will ramp sales into 2015, “we expect their share of add-on digital content revenue to grow in 2015 due to a strong correlation with the network effects in online play. Moreover, with holiday retail promotions ended, we expect digital download rates across AAA games to increase at a faster rate than overall software sales. This will have the effects of raising barriers of entry and improving the structural profitability of the business.”

Shares of Activision Blizzard are leading the way higher, last trading around $20.18, up 8.8 percent.