‘Star Wars Jedi: Fallen Order’ is among the titles from Electronic Arts, which reports its fiscal first-quarter earnings on Thursday.
Photo: Electronic ArtsThe nation’s largest videogame makers are expected to report one of their best June quarters ever, as pandemic lockdowns resulted in fewer options for people to stay entertained and connect with friends.
The health crisis has brought back lapsed videogame players, attracted newcomers and driven already heavy gamers to play more often, industry executives and analysts say.
After a strong early-year performance, publishing giants Electronic Arts Inc., EA 1.86% Activision Blizzard Inc. ATVI 0.68% and Take-Two Interactive Software Inc. TTWO 1.16% are forecast to post even better financial results for a period when few big-budget games are typically released. Analysts say the publicly traded companies, known for making many of the $146 billion global game industry’s biggest hits, likely benefited from players spending more money on virtual perks such as digital costumes for characters. Collectively, the companies are projected to more than double their adjusted earnings from the year-earlier quarter, according to analysts polled by FactSet.
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Electronic Arts, which reports its fiscal first-quarter earnings Thursday, and Take-Two, whose results are due out next week, also likely got a lift from delayed starts for professional sports, said KeyBanc Capital Markets analyst Tyler Parker. The companies make the sports-simulation franchises “FIFA” and “NBA 2K,” respectively, and broadcasters such as ESPN showed people competing at them. Such games are “probably the closest substitute right now and people are probably playing more,” Mr. Parker said.
Investors have been bullish on the companies’ prospects, with the share prices of all three rising an average of 25% over the past three months through Wednesday, compared with an 11% rise in the S&P 500 index. “They’re all going to have an amazing quarter,” said Wedbush Securities analyst Michael Pachter.
The robust outlook comes as other large companies in the games space have reported significant growth in recent weeks. Microsoft Corp. had a 65% increase in Xbox content and services revenue in its most recent quarter. Ubisoft Entertainment SA —the Paris-based company behind blockbusters such as “Assassin’s Creed”—last week said it had record quarterly net bookings, crediting a boost in sales from stay-at-home orders world-wide.
A surge in users for Roblox Corp., maker of a platform with millions of free games, has put the company’s third-party developers on track to double their earnings this year from 2019, the closely held company said Tuesday.
The pandemic hasn’t been the only driving force behind game companies’ growth. In recent years many publishers have shifted away from selling console and computer games for a one-time upfront fee to making those games free, with the option for players to repeatedly purchase low-cost digital goods and services. Other companies have opted for a blended model, charging an upfront fee while enabling in-game purchases. That has helped publishers generate more revenue from older games because people tend to plunk down more cash on digital add-ons the longer they play.
Electronic Arts’ “Apex Legends” and Activision Blizzard’s “Call of Duty: Warzone” are free to play, while Take-Two’s “Grand Theft Auto Online” is free with the purchase of “Grand Theft Auto V.” All three blockbuster games sell digital goods, also commonly referred to as microtransactions. The companies have been adding more free-to-play mobile games to their portfolios as well, an effort to capitalize on the fastest-growing segment of the videogame market.
Xbox players at a Shanhai expo this month.
Photo: Zhou You/VCG/Getty ImagesMark Rossi of Westbury, N.Y., said he has been playing games more often since March because the pandemic has prevented him from being able to enjoy his other pastimes with friends, such as going to the movies, playing hockey and seeing Broadway shows. He said he joined Microsoft’s videogame subscription service called Xbox Game Pass for $4.99 a month and estimates he has been spending triple the amount of money he normally spends on digital goods inside games such as “Valorant” and “Sea of Thieves.”
“I’ve been trying to stay in and my interactions with friends have been mostly through games,” said Mr. Rossi, a 33-year-old sales professional. “It’s a way for us to do something together without putting anyone’s health at risk.”
A key question going forward is whether game makers will be able to sustain their recent growth, especially if unemployment numbers decline or more consumer businesses reopen, such as movie theaters, bars and sports venues. On Ubisoft’s latest earnings call, the company’s finance chief, Frédérick Duguet, said there was some moderation in spending in June and July after “an exceptionally strong” April and May.
But with the new coronavirus still spreading in many parts of the world, including the U.S., and next-generation consoles due out later this year, the global videogame industry is poised to keep growing, analysts say.
Game publishers expect Sony Corp. ’s new PlayStation 5 and Microsoft’s new Xbox Series X to be meaningful sales opportunities that offer the chance to engage users with their newest content. Spending on game software world-wide is projected to climb 9.3% this year to $159.3 billion, according to estimates from Newzoo BV. That would be up from a 5.2% increase in 2019, according to the analytics firm’s report from this past spring.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
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