EquityResearch21October2019COREBarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ThisresearchreporthasbeenpreparedinwholeorinpartbyequityresearchanalystsbasedoutsidetheUSwhoarenotregistered/qualifiedasresearchanalystswithFINRA.PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE74.Restricted-InternalU.S.InternetTheFutureOfGamingIsNowWearetransferringco-coverageoffourvideogamecompanies-ATVI,EA,TTWO,andZNGA,withacombinedmarketcapof$90billiontoMarioLu-whileourcolleagueNickDempseyinitiatescoverageofCDProjekt.2019markstheyearcloudgamingwillbeintroducedtothemassmarketthroughthelaunchofGoogleStadiainNovember,whileGeneration9consoleshavebeenannouncedbybothSonyandMicrosoftforHoliday2020.Cloudfulfillsconsumerdemandforubiquitousgamingacrossmultipledevices,whichhavebeenprovenbymobilegaminggrowthoutpacingtheoverallindustry,thedisruptioncausedbycrossplatformtitlessuchasFortnite,andthepopularityofhybridconsolessuchastheNintendoSwitch.Weestimatecloudgamingservices5B+devicesandwillprovideanincremental$9Binsoftwarerevenueby2025,or20%oftheconsolemarket.Inotherwords,thefutureofgamingisnow.KeyPublisherTakeaways:ATVI:PTgoesto$63from$55.Wethinkcurrentvaluationisattractiveconsideringmultipleupcomingcatalysts:CoDMobile,DiabloImmortal,Diablo4,&Overwatch2.TTWO:PTgoesto$142from$124.WecontinuetoseeupsidefromRCSintheformofRockstarOnlineandNBA2K.WeestimatesignificantrosterchangesintheNBAwillresultinmorerepeatpurchases,whichcouldpotentiallybeworth$0.52inEPS,ora11%lifttoourNTMEPSestimates.EA:WemovetoEWfromOWandPTgoesto$99from$104.OutsidethestrengthofFIFA,weseelimitedupsidecomparedtoitspeersandestimatemajorityofEPSgrowthinF21willcomeintheformofbuybacksratherthanbusinessfundamentals.ZNGA:PTgoesto$6.00from$6.20.ZNGA’spipelineisstro...
