Videogame Downloads Reach A Pivotal Point – Barron’s
Digital gaming trends are picking up faster than expected, and that means the winners in the videogame industry are poised to keep winning.
Digital downloads likely made up a third of all console game purchases in the first three months of the year, up from less than a quarter in 2016, Morgan Stanley analyst Brian Nowak wrote Wednesday. He now thinks downloads will reach 50% penetration by 2019.
A look at past digital adoption trends suggests that game downloads have hit their inflection point, Nowak says. Sales of digital music, for instance, took a while to hit 20% penetration and then soared thereafter.
Activision Blizzard and Electronic Arts derive greater profits when consumers download games directly through their consoles. And the companies are doing a good job of coming up with new ways to get people to pay for things within games, too. World of Warcraft now offers tokens that can be used to pay for things in other Blizzard games, and the next Destiny game will feature in-game “microtransactions” from the start, unlike its predecessor.
Nowak raised his price targets for both Activision Blizzard and Electronic Arts based on the industry’s accelerating digital prowess. He thinks both shares of both companies could rise 11% higher than their current prices. Activision and EA are each up about 1% today.
The publishers have been on a tear this year, with Activison up 67% and EA up 46%. Digital downloads continue to hurt GameStop, which is down 13% so far this year, as its sales of new games plummet. For GameStop, there looks to be more pain in store.
Big Picture: Digital downloads are good news for Activision and Electronic Arts. And not so good for videogame retailer GameStop.