Their games are insanely popular and some of the best selling of all time, like Tetris Mobile, FIFA, and Madden for EA and Call of Duty, Diablo, and Warcraft from Activision.
These games became escapes from the pandemic during global lockdowns, as the world’s 2.7 billion gamers clogged online servers.
This has investors buzzing, but which is the better investment between Activision Blizzard vs EA stock?
The holiday 2020 season is a big one for the gaming industry. Both Microsoft (MSFT) and Sony (SNE) have next-generation consoles launching, and Activision and EA are aiming to cash in on these new platforms while maintaining revenue on older consoles, PC, and mobile.
However, the coronavirus also shutdown esports and trade shows like E3, which is normally where video game developers and publishers gain the most buzz for their releases. We’re entering a whole new world, and this is how these companies look heading into it.
Activision Blizzard Has 111 Million Monthly Users
Activision Blizzard is a holding company that includes five major business units:
1. Blizzard Entertainment
2. Activision Publishing
4. Major League Gaming
5. Activision Blizzard Studios
Between them, it’s a vertically integrated company that includes publishing, development, esports, and servers to run online games.
Its popular intellectual properties include Candy Crush Saga, StarCraft, Hearthstone, Tony Hawk, Skylanders, Crash Bandicoot, and more.
The company has a market capitalization over $60 billion, with share prices circling $80 in the second half of the year. Its P/E ratio is 27.62, and its 52-week high stock price was $87.73.
Its revenue in 2019 was almost $6.5 billion, and 2020 earnings were up by nearly a third in every quarter of 2020 so far.
While other companies are furloughing employees, Activision Blizzard is working to increase its 10,000-employee workforce by 20 percent.
It also reached 111 million monthly active users (MAU) across Activision games, with 80 million flocking to Call of Duty: Warzone. Meanwhile, Blizzard attracted 30 million MAUs, down from its previous year.
The company also pays an annual cash dividend that was raised to $0.41 in 2020. This is typically paid in March, although 2020’s payment was delayed a month by the coronavirus.
The big questions revolve around how soon the company can get big titles like the latest Diablo game out. This will be crucial in maintaining its market cap.
EA Has Been Weaker Than Activision (Relatively)
EA saw a weaker year than Activision Blizzard, as its fiscal-second-quarter revenue slid 15 percent to $1.15 billion.
Its outlook wasn’t better for the next quarter, which caused a bearish attitude on the stock. Heading into Thanksgiving, it’s struggling to maintain a $120 stock value.
This is up from its 52-week low of $85.69 at the onset of the coronavirus crash, but it’s a far cry from its high of $147.36 for the year. The company has a P/E ratio of 17.67.
Its stock price dropped upon its most recent earnings report, but it countered this bad news by announcing it will start paying a quarterly dividend of $0.17 per share, which comes out to a $0.68 annual dividend yield.
Analysts are mixed on how well the company will fare moving out of the COVID-19 pandemic, especially if esports (and general interest in professional sports) don’t pick up.
The company has strong IP in Battlefield, Apex Legends, and The Sims, along with its Star Wars partnerships. Still, it’s year-over-year revenue decline has investors worried. This could represent a discounted buy for those bullish investors who believe in the brand.
Will Warcraft Defeat Activision Blizzard Stock?
Activision has a lot of exposure in mobile games, especially through Candy Crush and Call of Duty: Modern Warfare. These franchises are free-to-play and depend on in-app purchases for continued profitability.
This potential revenue could be strangled as the effects of the coronavirus work through the economy. It also makes it difficult to sell players on its newest releases, like Black Ops: Cold War.
Why spend $70 on a game when you’re playing a very similar one from the same studio for free?
On top of this, Blizzard’s venerable Warcraft franchise is losing its luster and needs to find ways to stay fresh.
Releasing the original vanilla version of World of Warcraft was a good start, but it needs to keep innovating if it wants to keep players.
As it stands, the company is making four times as much this year off its Call of Duty microtransactions than it did last year. What’s unclear is how long it can cover for the shortcomings of its other properties.
Its exposure in esports also hurt it as these events were shut down in 2020, but the future looks bright as things reopen in 2021.
EA Faces Regulatory Challenges
EA has a lot riding on sports, and gamers aren’t necessarily happy about the company’s monetization. Critics complain the company’s in-game ads and microtransactions are too expensive and create a paywall.
It also faced regulation in the past over its usage of loot boxes (randomized digital purchases), which are legally comparable to online gambling.
If EA continues pushing its user base with unpopular decisions, it could lose them.
It’s also spending a lot for exclusive rights to certain sports leagues, like the NFL and FIFA. The exact details of these deals aren’t known, but the NFL’s televised contracts hint that it’s not cheap.
EA Vs Activision Blizzard Stock: The Bottom Line
EA and Activision kept gamers involved during the coronavirus pandemic. As stay-at-home orders spread, online gaming servers were filled with players seeking an escape. This pumped numbers up in a lot of popular games run by both companies.
EA is the cheaper buy, and it has a multiyear renewal for its NFL and FIFA licenses through the next few years.
If you have a favorite game that you play from one of these companies, it’s always better to invest in what you know. Otherwise, which you choose depends on your investment portfolio, risk appetite, and goals.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.