A late-quarter look at interactive/videogame names from Truist Securities finds the firm still bullish on the group, even though some outperformance since last earnings has brought the names closer to historical average vs. the S&P 500.
Overall the group of Electronic Arts (EA), Take-Two Interactive Software (NASDAQ:TTWO), Roblox (NYSE:RBLX) and SciPlay (SCPL) has outperformed major market stocks by 21-30 points since mid-May, analyst Matthew Thornton noted. In May, Twitch viewer growth and mobile in-app purchases decelerated more, while Steam viewer growth was stable.
As for macro worries, Thornton said “We continue to expect the Interactive end-market to be relatively resilient in a recession (small-ticket consumer as opposed to big-ticket consumer or brand advertising), though not immune.”
He’s got Buy ratings on most of the names, but Truist has downgraded Roblox (RBLX) to Hold, saying it screens least favorably of the group – citing revision trends (especially adjusted EBITDA where the firm expects continued aggressive investment); valuation; exposure to tailwinds/headwinds (it screens highest for volatility, lowest for visibility); and capital returns and M&A optionality.
May metrics were “weak again,” especially around users, he noted. He’s cut the price target to $29 from $36, vs. Friday’s close of $26.87.
On the opposite end from Roblox is what he called the most positive standout quarter-to-date: Take-Two (TTWO). Twitch trends, search interest and mobile in-app purchases look relatively positive driven by NBA 2K, while mobile tracking including Zynga is roughly flat, and Grand Theft Auto is tracking down largely as expected. Truist’s price target is $175, implying 39% upside.
Thornton also has Buy ratings on Electronic Arts (EA) and SciPlay (SCPL). As for Activision Blizzard (ATVI), it’s got a Hold rating, but eyes on a strong start for Diablo Immortal as well as looking ahead to Overwatch 2 coming in October, and Diablo IV in 2023.