Activision Blizzard Is The Big Holiday Winner In Video Games; GameStop Is The Loser

• Activision Blizzard, Inc. ATVI shares have gained 5 percent in the last one month, while shares of GameStop Corp. GME are down 21 percent.
• Pacific Crest’s Evan Wilson maintained an Overweight rating on Activision Blizzard and a Sector Weight rating on GameStop.
• Holiday checks indicate that Activision Blizzard’s Call of Duty Black Ops III could exceed expectations, while GameStop’s business is being impacted by digital and ecommerce.

Activision Blizzard

Final Holiday checks reveal that Call of Duty Black Ops III [CoD] continues to top the charts. Analyst Evan Wilson pointed out that CoD has consistently been the top game during this holiday season and sales have grown y/y on account of “the first three-year development cycle for Black Ops and the return of the ever-popular Zombies mode.”

Wilson expressed optimism regarding Activision Blizzard’s performance headed into 2016.

GameStop

Apart from CoD and possibly NBA 2K16, the big titles are unlikely to record y/y growth in physical unit sales, Wilson said. He added that digital transition seemed to be gaining share faster than was expected, resulting it a continuous downtrend in physical software “during the best months of the best year of the cycle.”

“GameStop's business model is being seriously challenged and we would stay away from it in the near- to midterm,” the analyst wrote.

Electronic Arts

Wilson maintained a Sector Weight rating for Electronic Arts Inc. EA, while adding that the company is likely to merely meet its sales guidance of 13 million units for Star Wars Battlefront, despite the buzz over this holiday season. He added that the sales are likely to be driven by retailer discounts, and Battlefront seems to have “clearly missed a much bigger opportunity.”

“Many customers seem to have purchased the game right away or when the game was on sale for an extended period of time. We did not get much evidence of a reacceleration in purchases after the movie release,” the Pacific Crest report noted.

Take-Two

The analyst maintained a Sector Weight rating for Take-Two Interactive Software, Inc. TTWO, mentioning that the company witnessed a “relatively successful” holiday season, with strong sales of NBA 2K16. He added, however, that there were no big games to compete with the likes of CoD, Star Wars and Fallout 4.

“We would remain on the sidelines until we hear more regarding the Rockstar relationship and any potential catalysts in 2016,” Wilson stated.

Ubisoft

Pacific Crest maintained a Sector Weight rating for Ubisoft Entertainment. Wilson mentioned that Assassin's Creed Syndicate, which was hoped to “bring the franchise back to its previous grand heights,” did not perform.

“The good news is that our checks indicate solid interest against low expectations for Rainbow 6: Siege. The other news, though, is that shares will continue to trade on Vivendi news more than anything in the near term as Vivendi has bought more shares and been vocal about its activist intentions and vision of merging Ubisoft with Gameloft,” Wilson commented.