This year’s virus-related lockdowns around the world resulted in more people gaming than ever before. Morgan Stanley analyst Brian Nowak noted in a client note late Sunday that 2020 has compacted roughly four years of user growth into a single year—including the raw numbers of players, but also how long people played, and how much money they spent while doing so. Here’s Why Activision Blizzard is Suing Netflix
To keep those new players engaged and existing gamers playing longer, gaming companies need to keep content fresh in existing franchises with updates and new stories, Nowak wrote. Video games are also starting to mirror social media companies, as players spend hours in battle royal games such as Fortnite, made by closely held Epic Games, and Call of Duty Warzone.
One of Morgan Stanley’s top picks in the sector is Activision Blizzard [$ATVI], which Nowak is partial to because of the company’s strong Call of Duty franchise, and its big game launches in 2021. Nowak pointed out that one opportunity for next year is to unveil the popular Call of Duty Mobile in China next year, coupled with more offerings that are free to play. Nowak boosted his target price on the stock to $108 from $100.
Activision and rival Take-Two Interactive Software [$TTWO] will both reap the rewards from a $10 increase in price for their big games, to $70 from $60. The new, higher price, which was first issued by Take-Two for its NBA 2k21 game on new console systems, will likely become the standard price. In the note, Nowak wrote that the increase in price for distinguished titles prompted a 2% to 3% revision to earnings in forthcoming fiscal years.
Among mobile gaming producers, Nowak believes that Zynga [$ZNGA] is a top pick. The bank upped its target price to $12 from $11, predicting that Zynga’s success with new launches will carry into 2021. Nowak cited the performance of its recent Harry Potter title, which may be on track to be another big franchise—set to achieve more than $100 million in annual bookings—for the San Francisco-based company.
Shares of Activision have gained 50% in 2020, Electronic Arts stock [$EA] has increased 30%, and Take-Two rose 65%. Mobile game maker Zynga’s stock shot up 66%, as the S&P 500 index notched a gain of 14%.