Market analyst downgrades expectations for Activision Blizzard and Take-Two Interactive

Market analyst downgrades expectations for Activision Blizzard and Take-Two Interactive
Sean Cleaver

By Sean Cleaver

October 12th 2017 at 2:00PM

Citing the risk of the Overwatch esports league and the frequency of top titles from Take-Two, analyst firm Cowen warns of potential underperformance

Wall Street analyst firm Cowen has reduced its ratings for some video game publishers, encouraging investors to take their profits following a good run.

According to a news post from news outlet CNBC, Cowen has downgraded its rating for World of Warcraft and Hearthstone developer Activision Blizzard. This is the publishers first downgrade in nine years having risen over 600 per cent in share price since the end of 2008. The reason for this downgrade is the Overwatch esports league.

Many esports teams have dropped out of Overwatch events over the last few months and with the league due to launch on December 6th with 12 teams, analyst Doug Creutz warned that the valuation of Activision Blizzard is "based on investor optimism around the potential for esports to be a large profit generator in the future."

"As this is the first time a publisher has ever attempted to launch a major esport from scratch, we expect Overwatch League 1.0 to be a learning experience, and thus believe that the probability of reality failing to meet investor expectations is relatively high."

However, in his note to clients, Creutz did note that there is confidence with Activision Blizzard's other big franchise, Call of Duty, and its upcoming release Call of Duty: WW2. "We remain confident about the trajectory of Activision's core business, with Call of Duty likely to rebound this year and Black Ops 4 likely due for release next year," Creutz said.

The same is also expected of Take-Two Interactive, whose shares are up 118 per cent following an increased return on digital content. However, Creutz has cited concerns over other non-annual titles and the lengthening gap between them. Red Dead Redemption 2 is due in Spring 2018 after a delay, meaning that there are no original big releases from the publisher in the all-important Q4 Holiday period away from 2K's yearly sports franchises of NBA2K and WWE2K.

Aside from various annual iterations, downloadable content for titles like XCOM 2 and Civilization VI, or rereleases like the Bioshock Collection and the upcoming L.A. Noire remaster, the last original big triple-A release for Take-Two's publishing arm (2K) was Mafia III in October 2016.

"Digital initiatives have certainly borne fruit, the frequency of highly successful title releases still has a significant bearing on the company's average earnings power," said Creutz. "From a tactical perspective, we also believe that many investors are in Take-Two shares specifically in anticipation of Red Dead Redemption 2's release, with a meaningful risk of a post-launch sell-off in shares."