Research

Mizuho's 2016 E3 Guide for Gamers & Investors

Neil A. Doshi and San Q. Phan
Neil A. Doshi and San Q. Phan
June 9, 2016

MIZUHO SECURITIES USA INC.  |  US EQUITY RESEARCH

Key Investor Questions for the Big Four Publishers

Summary

Next week we will be joining the gaming world at E3 in Los Angeles. While some have claimed that this E3 will probably be uneventful, we believe that the focus will be around the quality of games, new IP, and new platforms like VR and eSports. In this report, we highlight the key questions that investors should focus on when meeting with the management teams of the big 4 publishers. Our top video game stock is EA given clear catalysts expected from a robust title slate this year.

Key Points

What to expect and not expect at E3: This E3 would be a lot more exciting if Nintendo would showcase its upcoming NX system, but alas Nintendo said that it would not be displaying the new console at E3. We'd also be thrilled to get more details on a potential mid-cycle console refresh, but given that we are less than three years into the current cycle, it might be too early for that. But, we do plan on seeing more games for VR platforms, we expect to potentially get new details around Nintendo's NX system (but no demo), and we are anticipating some really great game demos like CoD, Battlefield 1, Titanfall 2, Ghost Recon: Wildlands, Mafia and hopefully a demo of Red Dead Redemption.

Key Questions For ATVI: 1) How is Overwatch doing relative to expectations? 2) Any Concerns About Call of Duty: Infinite Warfare? How should we think about synergies with King? 3) CoD China update? 4) How is the WoW Beta going and what are expectations for Legion? 5) Update on Studios and eSports?

Key Questions for EA: 1) Is $1B in incremental rev and $1B Op. Inc. achievable by 2021? 2) How high can operating margins go? 3) How should we think about FCF and use of cash? 4) What is the digital revenue opportunity? 5) When can we see new IP? 6) What is the revenue opportunity for EA in eSports?

Key Questions for TTWO: 1) Is the non-GAAP EPS guide For FY2017 conservative? 2) Expectations for Mafia III? 3) Looking ahead to FY2018 – will we see Red Dead? 4) What to do with Cash? 5) Can we get mid-term margin profile targets? 6) How should we think about Digital Revenue Growth? 7) Can GTA Online still grow?

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