Why Video Game Stocks Activision and Take-Two Sank in November

TL;DR

Both Activision Blizzard and Take-Two Interactive reported higher than expected profits and revenues, but their stocks fell over 10% due to slightly below expectation guidance and lofty valuations.

Transcript

Chris Hill: Two video game stocks in the spotlight this week. Activision Blizzard's third quarter profits came in higher than expected. Second quarter revenue for Take-Two Interactive came in higher than expected. Despite those headlines, both of these stocks falling more than 10% this week. David Kretzmann: Well, Chris, I think we can go to a litt... Read More

Key Insights

• 🙂 Activision Blizzard's strong profits were overshadowed by slightly below expectation guidance for the next quarter and fiscal year.
• ⌛ Red Dead Redemption 2's phenomenal success boosted Take-Two Interactive's revenue, showcasing the potential of well-timed releases.
• 👀 The decline in stocks highlights the significance of forward-looking guidance and investor sentiment surrounding valuations.
• 🎏 Continued success relies on the ability of both companies to create recurring revenue streams from established franchises.
• 🪛 Hits-driven nature of the gaming industry emphasizes the importance of successful releases in driving stock performance.
• 🥇 Red Dead Redemption 2's success places it alongside Grand Theft Auto V as a significant revenue generator for Take-Two Interactive.
• 🧡 Valuation concerns have finally brought Activision Blizzard's stock back into a more reasonable range after a period of lofty valuations.

Questions & Answers

Q: Why did Activision Blizzard's stock fall despite higher than expected profits?

While Activision Blizzard's third-quarter profits were strong, their guidance for the next quarter and fiscal year fell slightly below Wall Street expectations, leading to a decline in their stock. Some investors may have been expecting even stronger guidance.

Q: What franchises are driving Take-Two Interactive's success?

Take-Two Interactive's success is largely driven by their franchises, particularly Red Dead Redemption 2 and Grand Theft Auto V. Both games have generated substantial revenue and have a large and dedicated fan base.

Q: How did Red Dead Redemption 2 perform compared to its predecessor?

Red Dead Redemption 2 exceeded expectations, selling more than the first Red Dead Redemption did in its first eight years, and bringing in $725 million over its opening weekend. It has already sold over 70 million units globally.

Q: What factors contributed to the decline in Activision Blizzard and Take-Two Interactive's stocks?

The decline in stocks can be attributed to slightly below expected guidance for Activision Blizzard and concerns over the lofty valuation of both companies. The market may potentially be anticipating even stronger performance from these companies.

Summary & Key Takeaways

• Activision Blizzard's third-quarter profits exceeded expectations, driven by successful releases of franchises like Call of Duty and World of Warcraft, but their guidance for the next quarter fell slightly below Wall Street expectations.

• Take-Two Interactive saw higher than expected second-quarter revenue, primarily due to the massive success of Red Dead Redemption 2, with over 70 million units sold globally.

• Both companies' stocks experienced declines of over 10% despite strong performance, largely due to Wall Street's response to guidance and valuation concerns.