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Gaming earnings: The pandemic is their call of duty

  • Revenue
    • EA (Q4): $1.39 billion (+12% YoY vs. $1.19 billion expected)
    • Activision/Blizzard (Q1): $1.79 billion (-2% YoY vs. $1.32 billion expected)
  • Earnings:
    • EA (Q4): $418 million (+100% YoY, above expectations)
    • Activision/Blizzard (Q1): $505 million (+13% YoY, above expectations)
  • Guidance:
    • EA: $5.525 billion for the fiscal year
    • Activision/Blizzard: $1.69 billion in revenue for next quarter

The big number: With so many people stuck at home, it seems like they've all turned to buying new games to pass the time. Both EA and Activision/Blizzard pulled in massive revenue this quarter, with EA growing 12% over the same period last year. While Activision actually shrank a bit, its $1.79 billion in revenue was still well above what analysts had been expecting for the quarter.

People are talking: According to Activision, one of its most popular games franchises was just as much to thank for its earnings this quarter as the pandemic. "Our business exhibited accelerating momentum entering the second quarter from the dual tailwinds of strong execution in the Call of Duty franchise following last year's increased investment, and increased engagement as people turned to our interactive content as they sheltered at home," the company said in a release.

Opportunities: Both EA and Activision seem to be making the most of this unprecedented time. "With more people staying at home, we have experienced, and are continuing to experience, heightened levels of engagement and live services net bookings growth to date," EA said in a release.

Activision said in its release that work-from-home orders haven't affected its ability to design and release games to date, and the company hasn't shifted any release dates for future games yet. Competitor Nintendo, which reports its earnings on Thursday, is likely to be in a similar boat. Its Nintendo Switch consoles are sold out across the U.S., and its most recent game, Animal Crossing: New Horizons, has become a cultural sensation.

Threats: As with every business right now, there's no knowing where this pandemic will go. People do still tend to spend on entertainment even in recessions, so there's the chance that games-makers will have little problem developing and shipping new games from home that people will want to buy. But for consumers looking for new consoles, any disruptions in supply chains could hurt game publishers if new users can't access their content. Similarly, in-store sales will likely to continue to dwindle if lockdowns continue; EA noted a roughly 3% drop in packaged sales compared to the same quarter last year. With stores closed, there's inventory going stale on shelves that gamers may no longer want when stores open back up. Who will want FIFA 20 when FIFA 21 is on the way?

The power struggle: There is the chance to get carried away here. Although it acknowledges the unknowns in the economy, rising unemployment, and slow retail sales, Activision says it believes "there is potential for overperformance if these risks do not materialize." Keeping gaming revenue up, especially for games that rely on frequent microtransactions and access to the internet, could be a challenge in a prolonged recession.

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