E3: Morgan Stanley's 6 Takeaways
Dave Royse
Benzinga June 14, 2019
Morgan Stanley came away from the Electronics Entertainment Expo video game trade show in Los Angeles with a better understanding of the details of some of the key releases coming up this year and what they might mean for the industry.
Brian Nowak had six takeaways for video game investors.
Cloud Gaming Is Coming
Two cloud gaming services — Stadia from Alphabet Inc. (NASDAQ: GOOGL) and Project xCloud from Microsoft Inc. (NASDAQ: MSFT) — will be released in the fourth quarter.
Not all details are in place, but Stadia will roll out in two tiers, with one being free and one priced at $120 per year, Nowak said in a Friday note. (See his track record here.)
"We are fundamentally bullish on free-to-play Stadia in 2020, as it means that Stadia could offer gamers the same value proposition as Xbox or PlayStation do today while completely removing the $300+ upfront investment."
More ways of distributing games is good for publishers, he said. In addition to Google and Microsoft, other publishers that are or may be be building cloud gaming products include Amazon.com Inc. (NASDAQ: AMZN), Sony Corp. (NYSE: SNE), Verizon Communications Inc. (NYSE: VZ) and possibly Facebook Inc. (NASDAQ: FB), the analyst said.
New Console Cycle
Microsoft is leading the way in the move to the next generation of consoles, having announced it will roll out the next version of the Xbox, codenamed Project Scarlett, late in the year.
The buzz around Microsoft's console rollout "speaks to the enduring value proposition of traditional consoles, as it could be years (not quarters) before cloud gaming products become scaled viable alternative for most gamers," Nowak said.
Consoles will likely continue to be a important leading indicator for game sales, he said.
Company Catalysts
Take-Two Interactive Software, Inc (NASDAQ: TTWO) has the "cleanest catalyst set," the analyst said. Morgan Stanley expects a big "Red Dead" online content drop this summer; the company thinks "NBA 2K," is set for more growth and Nowak said "Borderlands" should be good for sales.
ATVI
Activision Blizzard Inc. (NASDAQ; ATVI) has a large pipeline in its Blizzard business, and Nowak said it needs to announce a full unit-based game for 2020 to boost investor confidence. "Call of Duty" digital monetization is uncertain this year, he said.
EA's 'Apex: Legends: Season 2'
Electronic Arts Inc. (NASDAQ: EA) will launch a second season of "Apex: Legends" July 2.
"Given the mixed reviews for the first season content, we view this new battle pass as critical for the game, as it may determine whether Apex will remain an important earnings driver for EA in the future or continue to decline," Nowak said.
This year's "FIFA" soccer game will launch with a new smaller-format mode, Volta, which the analyst said could boost engagement.
"Ghost Recon" Well-Received
Ghost Recon," from Ubisoft Entertainment, which is traded on the Euronext Exchange, was well-received at E3, Nowak said.
Take-Two shares were down 0.76% percent at the time of publication; Electronic Arts was down 1.35%; and Activision Blizzard was down 1.45%.
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