In a post-pandemic world, not all videogame companies are created equal.
Various lockdown orders from governments around the world triggered by the Covid-19 pandemic have proved a boon to videogame companies, as people stuck with little else to do turned to interactive entertainment. But as restrictions ease in the U.S., some publishers, such as Electronic Arts (ticker: EA), may fare better than others, such as Roblox (RBLX), according to analysts.
Roblox shares retreated 2.8%, to $84.16, in recent trading, as EA stock gained 1.8%, to $143.98. Take-Two Interactive Software (TTWO) rose 1.1%, to $173.98, and Activision Blizzard (ATVI) ticked up 0.5%, to $93.39.
BMO Capital Markets analyst Gerrick Johnson made the case for EA in a post-pandemic world Tuesday. He upgraded shares to Outperform from Market Perform and increased his target price to $168 from $150. Johnson said the company was the cheapest in his coverage group, which includes Activision, Take-Two, and mobile publisher Zynga (ZNGA).
Based on his model, EA trades at a discount to its peers—Activision, Take-Two, and others—fetching 18 times fiscal 2023 per-share earnings, compared with the rest of the group, which trades at 23 times forward earnings.
Johnson’s logic for EA’s success has three main components. First, even though the U.S. has eased many pandemic restrictions, they remain in place in many international markets, including Asia.
Second, EA’s franchises are strong, especially Apex Legends, which has achieved steady growth. Johnson’s team now models fiscal 2022 bookings of $740 million, or growth of 18% compared with a year ago, up from his previous model of $620 million in full-year bookings. The company’s sports business is poised for outperformance this calendar year too.
Finally, EA taken significant steps to bolster its portfolio of mobile products. Earlier this year, it bought Glu Mobile for $2.4 billion, which gives the company a library of games and an injection of talent that understands the mobile subsector. In June, EA also said it planned to buy mobile-game publisher Playdemic for $1.4 billion in cash from WarnerMedia.
But not every company stock is set to rise as lockdowns ease.
Benchmark analyst Mike Hickey initiated coverage of the online videogame platform Roblox Tuesday, rating the company a Sell with a target price of $75.
Hickey praised the business as offering “investors a unique and compelling investment opportunity” and noted that the coronavirus pandemic made many more consumers aware of Roblox and its offerings.
Yet Roblox received a significant bump from the pandemic, Hickey said, reporting bookings growth of 171% in 2020, up from 39% growth the year earlier. He said he is cautious the pandemic brought in an outsize number of new gamers last year that might otherwise have been spread over many quarters or years.
As lockdown restrictions ease in the U.S., that engagement may lessen, he warned. And, because many of Roblox’s users are children, their parents might pull back spending on the platform as other activities become available again.
According to Hickey’s model, Roblox’s current enterprise value exceeds that of EA and Take-Two combined. Roblox currently trades at 18 times its enterprise value, compared with its rivals, which trade at roughly five times, he wrote.
Roblox stock advanced 88% from its reference price since its direct listing earlier this year, as EA shares were flat. The S&P 500 index rose 17% in the same period.
Write to Max A. Cherney at [email protected]
