New York (CNN Business)Stiff competition is eating into the sales and profits of Electronic Arts, Take-Two Interactive and other major video game companies.
Shares of Electronic Arts (EA) plunged 13% Wednesday, a day after the company reported sales that missed forecasts. It also issued weak guidance for the next quarter. Take-Two Interactive (TTWO) beat estimates, but the company’s outlook was disappointing. The stock dropped 11%.
The problem: Fortnite, a multiplayer game that has become a cultural phenomenon that crushes its competitors. The title is free to play, but makes money on in-game purchases. Its creator, the private startup Epic Games, is backed by China’s Tencent (TCEHY), Disney (DIS) and top investing firms KKR and Kleiner Perkins. Epic is now worth $15 billion, according to research firm CB Insights. Read MoreEA executives cited Fortnite as a game that built momentum last quarter while EA stalled. But Chief Financial Officer Blake Jorgensen told investors on a conference call this week that the company would fight back. “We think Fortnite helped grow the industry and other free-to-play games,” he said. “This is an opportunity for us to try and participate in it.”Take-Two Interactive CEO Strauss Zelnick dismissed Fortnite’s popularity. He cited the success of Take-Two’s recent big release, Red Dead Redemption 2, as a sign that the industry can handle more than one hit.
Take-Two Intearactive’s Red Dead Redemption II was a hit during the holidays but investors are still worried about competition from Fortnite.Zelnick told analysts during a call Wednesday that the company continues to have “stellar results” despite the existence of competitive titles like Fortnite. That wasn’t enough to ease gaming investors. Poor stock performances from both companies also dragged down shares of rival Activision Blizzard (ATVI), which will report earnings next Tuesday. The stock fell more than 9% by mid-morning. Sony (SNE), which makes the PlayStation console, and Nintendo, which sells the Switch, also fell Wednesday.
EA needs a new hit more badly than its competitors
Jefferies analyst Timothy O’Shea singled out EA as a company that appears to be in worse shape than its rivals. Games like Fortnite are “applying intense pressure” on the company, he wrote in a Tuesday report. O’Shea added that everything except EA’s successful FIFA soccer franchise “struggled.” For example, he said that Battlefield V, a first-person shooter game that was expected to compete against Fortnite, “bombed.”The Fortnite threat extends beyond gaming. People only have so much time to play games, listen to music or stream movies and TV shows. Even the mighty Netflix (NFLX) has recognized the title’s power.
When Netflix reported earnings last month, it said in a letter to shareholders it was more concerned about video games than rival services from HBO, Amazon (AMZN), YouTube or Disney. (CNN parent company AT&T (T) also owns HBO and is an investor in Hulu.)”We compete with (and lose to) Fortnite more than HBO,” Netflix said in its shareholder letter.
Source: edition.cnn.com