EA - BofA still bearish but sees softer drop in videogame spending for 2023

A decline in spending on videogames in 2023 is likely to be less than expected, BofA says, given that the bank now expects a softer and later recession than it had predicted, and with a new premium Call of Duty back on track for late in the year.

In an industry preview for 2023, analyst Omar Dessouky says he now expects PC/console game spending will fall 1-3% year-over-year, an improvement from the mid-single-digit drop he expected in September. Still, that flies in the face of the rest of the Street, whose consensus estimates add up to expectations of a historically typical 9% positive growth rate.

BofA expects revenues for the top eight-grossing games - what it calls "mega-franchises" - to be flat, while subscriptions grow 10% as consumer pursue a value play, and spending on other games (AAA/AA/indie) falls 4%.

That relatively strong expectation for big franchises means likely outperformance again from Electronic Arts ( NASDAQ: EA ) and Activision Blizzard ( NASDAQ: ATVI ), Dessouky says, while Take-Two ( NASDAQ: TTWO ) can join them "if its new release pipeline becomes clear to investors." (For more on that subject, see MoffettNathanson's Friday upgrade of TTWO ).

As for mobile, the same gloominess vs. the Street plays out there, he noted. "Our global mobile game spending forecast is significantly more bearish than implied by consensus estimates of 28 mobile gaming stocks (+6% Y/Y, ~50% of spend tracked), SensorTower (+8% Y/Y) and data.ai (-3% Y/Y)."

Mobile gaming stocks are "unlikely to work in ’23 because a trilogy of disruptions to user acquisition (IDFA, COVID reopening drop in engagement, recession dent monetization) would expose the mobile app growth model practiced over last decade as flawed," he added.

Meanwhile, creator ecosystems (from Roblox ( NYSE: RBLX ) and Unity Software ( U ) among others) are likely to be bright spots from here as more developers use them to address rising demand from new generations (Gen Z and Alpha), he said. But declines in game sessions are likely to reduce ad inventory, and broker ad networks (at AppLovin ( APP ), Unity ( U ) and Digital Turbine ( APPS )) are set to face a pullback in ad spending from developers looking to conserve cash.

Activision Blizzard ( ATVI ) was apparently not set to release an annual edition of Call of Duty in 2023 as it pursued its $69B acquisition by Microsoft ( MSFT ), but the company said in November that it would have a premium release. That could add 2% growth inside BofA's spend forecast for $88B, Dessouky said.

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