Wedbush analysts recently released a report that provided a monthly update on the video game industry. After the majority of the big names in the space reported mostly positive results for 4Q14, Wedbush is bullish on the industry.
Electronic Arts Inc. EA, Nintendo Co., Ltd (ADR) NTDOY and GameStop Corp. GME all reported earnings beats in January. Nintendo saw large foreign-exchange gains during the quarter, and GameStop reported year-over-year holiday sales comps that exceeded consensus expectations.
However, the news wasn’t all good during earnings season. Turtle Beach Corp HEAR pre-announced annual sales at the low end of its guidance. The stock is down more than 27 percent so far in early 2015 and 85.5 percent over the past year. Majesco Entertainment Co. COOL also reported disappointing earnings.
Overall, the Wedbush Video Game Index was up 5 percent in January on mostly positive earnings in the space.
Key Sales Numbers
U.S. console/handheld software sales were down 2 percent year-over-year in December, marking the seventh consecutive month of declining year-over-year sales as consumers are shifting more to digital downloads. Reported sales for the quarter of $1.254 billion still beat Wedbush’s estimate of $1.180 billion. Over 70 percent of hardware sales during the month of December included bundled software, which also likely weighed on stand-alone software sales numbers during the month.
Wedbush analysts believe that most of the stocks in the space currently offer a compelling entry point. They believe that the current console cycle is on an upswing and the shift to digital sales provides opportunity for higher margins. Wedbush has an Outperform rating on the following stocks:
1. Electronic Arts
3. Turtle Beach
4. Activision Blizzard, Inc. ATVI
5. King Digital Entertainment PLC KING
6. Zynga Inc ZNGA
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