MIZUHO SECURITIES USA INC. | US EQUITY RESEARCH
Summary
In December 2016, we conducted our second gaming survey of more than 630 console gamers, and we remain generally bullish for the overall video game industry as we head into 2017. More importantly, per our survey, Take Two's Red Dead Redemption appears to be the most anticipated game for 2017. Furthermore, most people plan to spend the same if not more on games and additional content next year, which we view as a positive, and engagement appears to be increasing.
Key Points
Engagement with console games is increasing. 60% of respondents said they are spending 3-15 hours per week vs 50% back in June. Players playing more 11-15 hour a week ticked up 300 bps from our June survey, and players playing less than two hours per week also ticked down 600 bps. In our view, greater engagement leads to greater revenue for publishers through higher margin digital and micro-transaction revenue.
Demand for games remains strong into next year. Respondents indicated that 83% plan to spend the same or more on video games and additional content in 2017, which is better than 69% from our June survey. This is positive as it points to how publishers have implemented a successful strategy of selling games and additional content to keep people engaged (and spending money) on those properties. In our view, EA will need to make Star Wars Battlefront stand out next year, and ATVI will need to breathe new life into CoD.
Red Dead 2 is the most anticipated game for next year. Based on our survey, 15% of console owners have pre-ordered the game, while 23% plan to buy it at some point in time. This indicates to us that 38% of active console players in the US, or ~10m people could buy the upcoming game. Given that there are very few details about this game, this is remarkable. As the TTWO marketing machine heats up, we expect that demand could grow significantly.
TTWO is our top gaming pick for 2017, followed by EA. We are currently modeling about 12m units for Red Dead 2 but we think there could be upside. We also remain positive on EA, as we believe that strong BF1 unit sales will drive solid DLC revenue next year, and the upcoming Star Wars game should benefit from the next Star Wars movie.
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