- Epic Games
- Fortnite, a Battle Royale-style game, is stealing attention away from games like Call of Duty and Grand Theft Auto Online.
- The game is 100% free on consoles, which presents a challenge to video game company rivals like Activision Blizzard and Take-Two Interactive Software.
- Activision Blizzard and Take-Two Interactive Software shares have fallen, but the dip in prices is a buying opportunity according to Jefferies.
- Watch Activision Blizzard and Take-Two Interactive trade in real time .
Epic Games’ Battle Royale-style game, Fortnite, is taking the gaming community by storm.
Fortnite is “undeniably the hottest game we’ve seen in years,” Jefferies analyst Timothy O’Shea wrote in a note. “The most notable aspect of Fortnite is its business model: the game is 100% free on consoles.” Because Fortnite has been a pre-existing game, Epic Games had an easier time offering the game for free on consoles, according to O’Shea.
Epic Games likely made enough money off of the game previously to cover base costs, and once it switched its business model, the game brought in revenue through add-on purchases. In March alone, Fortnite raked in $223 million in revenue across all platforms, according to research firm Superdata. O’Shea expects video games to spread the free business model to consoles as part of the industry’s transition to a fully digital model. Already, free games dominate markets like China and mobile.
This presents challenges for rival video-game companies Activision Blizzard, maker of Call of Duty, and Take-Two Interactive, owner of Grand Theft Auto Online (GTA Online). Shares of the two companies have been hit hard in recent weeks, but Jefferies sees their dips as a buying opportunity, saying the worst-case scenario is already priced into their stock prices.
Fortnite, which has captured the attention of “10s of millions of users,” is stealing some engagement from Call of Duty, and Activision Blizzard shares have tumbled 13% since March 9, when Activision Blizzard and Take-Two Interactive shares began selling off in conjunction over Fortnite competition and the broader tech stocks sell-off.
However, Call of Duty showed popularity during the past holiday season and research firm Superdata reported Candy Crush hit a multi-year high in March, having its best month since 2014 and placing ninth for highest-grossing mobile games in March. O’Shea believes the company shows promise, especially as ads, mobile games, eSports, and consumer products scale can be used as leverage in the future.
It’s not just first person shooter games that are under fire from Fortnite’s popularity. Even a game with a free-roam aspect and racing like Grand Theft Auto Online is feeling the pressure.
“Investors perceive GTA Online as being the most at-risk from Fortnite,” O’Shea wrote, noting Take-Two Interactive Software has fallen 11% since March 9 amid fear that the competition will weight on quarterly results.
However, the Take-Two is getting ready to launch Red Dead on October 26, and O’Shea sees an opportunity for shares to recover as he expects the game to be “a smash hit with a long revenue tail.”
O’Shea says, “While we are not attempting to call the bottom, we absolutely want to own both stocks heading into 2H and ’19.”