What You Missed This Week in Video Games

“Game On” is The Fly’s weekly recap of the stories powering up or beating down video game stocks.

NINTENDO UPGRADE: Yesterday, Bernstein analyst Robin Zhu upgraded Nintendo (NTDOY) to Outperform from Market Perform. While 2023 was “one of the best years ever for new AAA game launches,” most video game stocks fell in the second half of the year as investors worried the industry could struggle with waning launch cycles and tough comps, the analyst told investors. While the latter will remain an issue in the first half of 2024, the firm generally thinks the set-up over the whole of 2024 will “more supportive for share price performance,” the analyst added. The Fly notes that the upgrade comes amid speculation that Nintendo will announce and/or release a successor to the Switch in 2024, though the company has made no such official announcements.

‘HOGWARTS LEGACY’ SALES: Warner Bros. Discovery’s (WBD) 2023 video game “Hogwarts Legacy,” which is based in the “Harry Potter” media universe, broke 22M units sold by the end of the year, with roughly 2M of those unit sales occurring during the December holiday season, Variety’s Jennifer Maas reported. “But it’s not just the unit sold that I’m so proud of, it’s just that it delighted the fans so much,” Warner Bros. Interactive Entertainment president David Haddad told Variety. “It brought Harry Potter to life in a new way for gamers where they could be themselves in this world, in this story. And that’s what the team at Avalanche set out to do when they were developing the game and I think that’s really why it resonated so well and remains the best-selling game of the year in the entire industry worldwide. That’s a position that typically is held by one of these incumbent’s sequel games and we’re so proud that we’ve been able to break into the top ranks.”

BMO INITIATIONS: In a research note to investors this week, BMO Capital said the firm is positive on the video game sector heading into 2024, with expectations for strong console growth, especially in the U.S., being offset by continued regulatory pressure in China. Overall, BMO anticipates continued revenue and user growth for the next decade.

Looking to individual stocks, the firm initiated coverage of Roblox (RBLX), Electronic Arts (EA), and Take-Two (TTWO) with Outperform ratings and initiated coverage of Ubisoft (UBSFY) with a Market Perform rating. With Roblox, the firm said the company has a “highly differentiated” platform for independent creators to develop and play various gaming experiences, similar to YouTube for gamers, and that it maintains the youngest user base of any of the major game publishers.

Turning to Take-Two,  BMO noted that “Grand Theft Auto” is among the largest and most profitable entertainment franchises in history. The setup for “GTA VI” “looks exceptional” as console sales surge after COVID-19-era supply chain issues were resolved in mid-2023, the analyst told investors in a research note, adding that the firm thinks “GTA VI” could sell 30M units in calendar Q1 of 2025. With EA, BMO said the company has the highest exposure in the group to the surging console market, with 60% of revenue from console games, and continues to believe takeover chatter will support industry share prices.

Meanwhile, BMO said that Ubisoft, “essentially a smaller European peer to EA and Take-Two,” is known for taking more creative risk than the American publishers, which results in structurally higher R&D, but lower M&A. While the firm sees the company being well positioned for a “surging console tailwind,” it argues that lacking “a true mega-hit game places Ubisoft at a disadvantage.”

OTHER STORIES TO WATCH:

• Microsoft (MSFT) announced a Developer_Direct presentation for January 18, where it will give an “inside look” to upcoming Xbox games such as “Senua’s Saga: Hellblade II” and the untitled “Indiana Jones” game (read more)
• Ubisoft and Tencent (TCEHY) plan to use Nvidia’s (NVDA) AI-generated non-player character tools, Digital Trends reports (read more)
• Bandai Namco (NCBDY) said that the release of a demo for upcoming fighting game “Tekken 8” led to increased preordersSee Insiders’ Hot Stocks on TipRanks >>

  Read More on NTDOY:

  • Nintendo (OTC:NTDOY) May Release Switch 2 Sooner than Thought
  • What You Missed This Week in Video Games
  • EWJ: Japanese Stocks Look Well-Positioned for Gains in 2024 
  • Nintendo starts resricting online play for Wii U and 3DS, Engadget says
  • ‘Call of Duty: MW III’ top-selling game in U.S. in November, says Circana