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The Ratings Game: Videogame sales heading for decline in U.S., but one analyst sees a 2023 rebound

Videogames are heading for a U.S. sales decline in 2022, but a looming recession and new releases could turbocharge a rebound in 2023, according to one analyst.

Stifel analyst Drew Crum said he estimates U.S. videogame sales to decline 6% to $57 billion in 2022, benchmarked against data from NPD Group. That contrasts with videogame data-research firm Newzoo’s estimate of 2% growth, Crum said.

Meanwhile, worldwide videogame-sector sales are forecast to squeak on by with year-over-year growth of 0.4% to $275 billion, according to IDC analyst Lewis Ward. The IDC analyst includes data in his figures that some analysts do not, such as ad revenue from mobile games, which Ward expects to rise 13% to $36.2 billion annually worldwide.

Read: The pandemic boom in videogames is expected to disappear in 2022

2022 was always expected to be a weak year, compared with 2021’s pandemic-driven sales. That not only makes 2023 comps slightly better, but Crum said that videogames also have an edge in that during a recession they become more of a go-to form of entertainment.

“We view videogames as an inexpensive form of entertainment that should ‘hold up’ in a period of macro weakness, and companies that develop and launch compelling content have a better chance of engaging with and monetizing across their respective player communities,” Crum said.

Crum thinks sector earnings can grow in 2023, with U.S.-based third-party console publishers seeing 40% or more growth.

That reflects “a stronger slate and easier comps from Activision Blizzard Inc., and a stronger slate and full year of contributions from Zynga for Take-Two Interactive Inc.,” said Crum, who considers Take-Two
TTWO,
-2.70%

one of his top picks because 24 immersive core titles are planned for release between 2023 and 2025.

Read: Take-Two’s ‘Grand Theft Auto VI’ hack: Severity depends on whether source code was taken, analysts say

The Stifel analyst thinks Electronic Arts Inc.
EA,
-0.06%

should also hold up well because of the composition of its portfolio, “with sports representing more than 60% of the company’s net bookings, a genre that’s perennial in nature and hence may offer greater consistency in what can be a ‘hit-driven biz.’” Crum has a buy rating on EA, and said his buy rating on Activision
ATVI,
+2.27%

assumes its acquisition by Microsoft Corp.
MSFT,
+0.85%

is a done deal.

Crum also downgraded Ubisoft Entertainment SA
UBI,
-6.75%

shares to a hold rating because he expects the company’s outlook to be “overly ambitious,” and that a recently increased ownership stake by Tencent Entertainment Co. Ltd.
419,
-2.21%

lessens the likelihood of it being acquired anytime soon.

Year to date, Take-Two shares are down 35% and EA shares are down 11%, while Activision shares, which have spent most of that time awaiting closure of the Microsoft acquisition, are up 16%. Ubisoft shares trading on the Paris Stock Exchange are down 29%. In comparison, the S&P 500 index
SPX,
-0.84%

is down 21%, and the tech-heavy Nasdaq Composite Index
COMP,
-1.37%

is down 29% this year.

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