Gaming companies turn to new releases, mobile to maintain growth post-COVID

The major U.S. video game publishers continue to forecast growth driven by upcoming launches for flagship titles and an expanding mobile business, even as the industry's pandemic-fueled sales frenzy shows signs of a slowdown.

Activision Blizzard Inc., Electronic Arts Inc. and Take-Two Interactive Software Inc. all beat earnings expectations for the June quarter. However, net bookings — a metric that encompasses the amount of products and services sold digitally and physically — declined for all three companies on a tough year-over-year comparison that encompassed unprecedented gains during last year's pandemic-driven lockdowns.

In efforts to offset the post-pandemic declines, the companies are now increasingly turning to the highly lucrative mobile gaming space, be it through expanding their existing franchises onto the platform or through acquisitions of fully established studios.

Activision Blizzard

Activision Blizzard led sales and revenue among the major U.S. publishers in the June quarter, with its key franchises driving earnings well above the company's forecast.

Activision's total net revenues for the quarter were up 18.8% year over year $2.30 billion, compared to guidance of about $2.14 billion. Net bookings fell 7.6% to $1.92 billion, still above guidance of $1.85 billion.

Speaking during a recent earnings call, Activision COO Daniel Alegre said the company significantly expanded investment in three of its largest franchises — Call of Duty, World of Warcraft and Candy Crush — over the last three years. This strategy continued to deliver strong results in the second quarter, as all three franchises recorded higher-than-expected user-engagement levels even as many pandemic lockdowns ended and competition from other forms of entertainment increased, Alegre said.

Call of Duty, in particular, experienced a significant spike in both sales and users, with the mobile version of the franchise on track to top $1 billion in consumer spending this year. The company is planning to launch a new installment of the game this fall, which Alegre said will integrate with and enhance the existing Call of Duty ecosystem.

Activision raised its full-year outlook to reflect the outperformance of its existing titles as well as the forthcoming launch of the new Call of Duty title. The company now expects net revenues of $8.52 billion and net bookings of $8.65 billion, above its previous forecast of $8.37 billion and $8.60 billion, respectively.

Electronic Arts

EA also posted June quarter earnings above expectations. Net bookings fell 3.9% year over year to $1.34 billion, but stayed above guidance of $1.25 billion, while net revenue grew 6.3% to $1.55 billion, above guidance of $1.48 billion.

EA CFO Blake Jorgensen said during the company's earnings call that the June quarter results were within 5% of the record sales recorded a year ago, driven by strong consumer spending within the company's Apex Legends and FIFA games as well as better-than-expected sales of two new games: Mass Effect Legendary Edition and It Takes Two.

The strength extended to all businesses across EA's sales territories, regardless of whether those areas were impacted by pandemic-driven closures, said EA CEO Andrew Wilson.

"What we're seeing right now is the world is in different phases in different places, but on aggregate, engagement in and around our games continues to be extremely strong," Wilson said during the earnings call.

Based on the performance of its full game sales in the quarter as well as high user engagement in titles like Apex Legends, EA raised its outlook for its fiscal year 2022 for the period ending March 31, 2022. The company now expects total net revenue of about $6.85 billion, and net bookings of $7.4 billion, above previous guidance of $6.80 billion and $7.30 billion, respectively.

EA's updated guidance does not include any estimate for Playdemic Ltd., the mobile gaming studio that the company is acquiring for $1.4 billion from AT&T Inc. The deal is part of EA's plan to further expand into the mobile space, following the acquisition of Glu Mobile Inc. that closed in April.

"We're also delivering our blockbuster franchises to mobile players, including Apex Legends and Battlefield experiences rolling out for mobile later this year," Wilson said. "With the ability to bring new teams together with EA's powerful IP, we are building mobile into a growth center for Electronic Arts with long-running live services at the core of our strategy."

Take-Two Interactive

Take-Two also beat earnings expectations for the June quarter, as its Rockstar Games Inc. unit's evergreen titles continued to outperform and break industry sales records. The studio's Grand Theft Auto V has sold in more than 150 million units, while Red Dead Redemption 2 has sold more than 38 million units.

The two games' better-than-expected performance drove Take-Two's net bookings to $711.4 million in the quarter, which while down 28.6% year over year was above the company's forecast range of $625 million to $675 million. Net revenue was down 2.2% to $813 million, but also above the company's guidance range of $730 million to $780 million.

Like EA, Take-Two is increasing its presence in the mobile games space. The company acquired Serbian developer Nordeus in June and integrated it into the T2 Mobile Games division, which now also includes Take-Two's other mobile game studios, Socialpoint and Playdots.

"Mobile remains a key growth opportunity, and we believe that our acquisition of Nordeus will enhance meaningfully our talents and expertise in this area," Take-Two CEO Strauss Zelnick said during the company's earnings call. "This structure will enable us to realize cost synergies, leverage expertise and share best practices across our mobile teams."

Despite the outperformance of Rockstar's titles and immediate benefits from the Nordeus acquisition, Take-Two did not increase its full-year guidance, due to the company's decision to delay two major unnamed titles to later in its fiscal year ending March 31, 2022.

"Our approach has always been to allow our labels to determine when projects are ready to bring to market to ensure the best quality and overall experience for players," Zelnick said.