There’s an entertainment sector that was bigger than the movie box office before the pandemic. That industry? Video games. Over the years, the space has grown to include a number of publishers and sales in the billions.
And it’s a trend likely to continue. This sector was just upgraded by MKM Partners, who sees further gains in the space as next-generation consoles start to hit the markets.
The biggest players in the space are Activision Blizzard (ATVI), Electronic Arts (EA) and Take-Two Interactive Software (TTWO). The new consoles, and with higher prices for games on those consoles, are likely to boost profit margins for the video game publishers.
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All three companies are near, but somewhat off, their all-time highs. As video game sales have continued to hold up well amidst live-at-home trends, the added benefits of the next generation of consoles will likely add to the profitability of all three studios.
Action to take: Among the three major players, Activision Blizzard has held up the best, just edging out Take-Two, with EA a distant third. Shares have been somewhat rangebound for the past two months, but could take off toward the end of the year as holiday sales lift shares.
The March 2021 $85 calls will see shares past the holiday season, and through fourth-quarter earnings. The options are priced around $5.65 and should deliver high-double-digit gains, likely well before the time premium starts to work against the trade.