Welcome to Master the Meta, the #1 newsletter about the business of video games.

Hi everyone,

This week marked the climax of earnings season, so this issue is dedicated to digging into the results from EA, Zynga, Take-Two, and Nintendo. We’ll get back to a more diverse array of topics next week.

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Now, here’s your weekly roundup and analysis of what’s happening in the video game industry — starting with a fresh deep dive!

🔍 How to Win Beyond Console: The 6 Paths to Mobile


It’s a fact: nearly all legacy PC/Console publishers struggle (and usually fail) to find mobile success, despite it being one of their largest opportunities. There are various reasons why, but there’s also plenty reason to believe success can be engineered. With the right strategies and tactics, we believe many PC/Console-focused publishers can achieve some type of scalable and sustainable mobile success.

This essay analyzes three major publishers who found respectable mobile success and builds a business strategy framework called the “6 Paths to Mobile,” which other companies can use to determine their own next steps. Check it out:

#1: Yes, EA Remains a Growth Business

Fifa 21

Despite topping guidance, EA’s second quarter results were lower than the prior year’s thanks to adjusted launch dates for Madden 21 and FIFA 21. Not everyone loved the short-term guidance either, but it’s important to not miss the forest for the trees. Over the past year EA generated record cash flows of $2 billion, and key franchises continue to grow. For example:

  • FIFA now engages over 100 million players and saw net bookings rise 26% year-over-year

  • Madden NFL 21 grew its player count 30% over last year

  • Apex Legends is on track to generate over $500 million in net bookings this fiscal year, and management sees a path to double it from here (with mobile)

  • The Sims 4 player base is the largest in franchise history

Additionally, over the past six months, even though full game launches produced lower bookings than last year’s equivalents, live services more than made up the difference and pushed margins higher as a result. Throw in ongoing digital tailwinds, a company-wide launch on Steam, and EA Play’s inclusion in Microsoft Game Pass, and it’s easy to see how this trend will persist. Growth in net bookings and cash flow may be lumpy, but the core of the business is stronger than ever.

EA also announced its first ever quarterly dividend ($0.17 per share - a 0.5% yield) plus a new two-year $2.6 share repurchase program (7.5% of EA’s market cap). Some people are claiming this is a sign that EA is no longer a growth business. Maybe there’s a sliver of truth to that — at least compared to the past — but I think what’s truer is that EA generates so much cash that they don’t have enough obvious things to do with it. Nothing about this shareholder returns program should stop the business from 1) reinvesting to grow its pipeline, 2) pursuing acquisitions, 3) making mobile a more important pillar of the business, and 4) bringing EA’s IP to more places. Even though EA’s exact path is difficult to see — what’s in the pipeline? what M&A is possible? what’s the refreshed mobile strategy? — EA has the capital and talent to make big moves, so it’s more likely a “when” than an “if” EA surprises with fresh news that drives future growth we don’t see today. Also, like Activision (which we discussed last week), I expect EA to focus on evolving its top franchises into more robust ecosystems via free-to-play, mobile, premium games, and other platforms in a self-reinforcing way. EA will be fun to watch.

  • P.S. EA is extending its licensing deal with the NHL and UFC, and it also announced a Mass Effect trilogy remaster.

#2: What Record Didn’t Zynga Break?

Harry Potter

All is going well at Zynga, and the third quarter was a record among most metrics. Revenue and bookings rose 46% (to $503 million) and 59% (to $628 million), respectively, and operating cash flow jumped 65% to $113 million. International revenue broke records, and Zynga witnessed its highest MAU (83 million, +23%) and DAU (31 million, +53%) results in over six years.

Much of this growth can be attributed to acquisitions. Peak Studios’ Toon Blast and Toy Blast significantly contributed, and Rollic (Zynga’s new hyper-casual studio) officially integrated on October 1st. That said, Zynga’s existing portfolio was no slouch either. Words With Friends, CSR2, the Zynga’s Casual Cards portfolio generated record Q3 results, and the Social Slots portfolio delivered its best quarter ever as people who quarantined are playing mobile games longer than before. It also looks like Zynga’s latest launch, Harry Potter: Puzzles & Spells, is off to a great start (which Sensor Tower data confirms) and Zynga has another hit on its hands. The game should be a solid growth driver in 2021, and even if heavy user acquisition investments slightly drag down margins next quarter, it’ll pay off in the following quarters.

Going forward, Zynga is well positioned for continued organic growth. Bold beats (Zynga’s term for major content updates) keep games relevant and growing for years, Harry Potter adds an immediate tailwind, and both FarmVille 3 and Puzzle Combat are progressing well in soft launch — not to mention other projects in the works like CityVille 2, Star Wars games, and new games from both Peak Studios and Gram Games. Also, management is clear about its intentions to hunt for even more acquisitions. This could mean buying additional ‘forever franchises,’ new hypercasual studios, or even tech-focused businesses that level up Zynga’s abilities in data science, advertising, and possibly vertical integration.

Zynga clearly has large ambitions, and its widening approach to acquisitions is likely the result of both IDFA implications and the fact that it takes more to move the needle than before. In the earnings call, CEO Frank Gibeau mentioned that he thinks Zynga is well positioned for the post-IDFA world as the result of preexisting scale, long lived franchises, and Rollic’s unique user acquisition capabilities. My sense is that Zynga is shifting to view itself not only as a steward of popular games but the owner of a mobile gaming network, where the company can leverage its large audiences, targeted data, and increasing tech expertise to build a self-reinforcing ecosystem that smaller companies would have a hard time matching. It will be fascinating to watch how Zynga’s thinking continues to evolve and how that translates into execution/acquisitions. For now, though, it’s hard to critique Zynga for how they’re running the business. The team is doing a great job.

#3: Take-Two Shoots From 3… and Scores

2K21 Forever Edition

I’ve been impressed with Take-Two’s trajectory for years, and this quarter was no exception. Net bookings grew a small amount (topping estimates), but digitally delivered net bookings grew 14% (59% of non-mobile sales were digital) and recurrent consumer spending leaped 43% (accounting for 64% of bookings). NBA 2K21 was the big launch of the quarter and has already sold over 5 million units. NBA 2K’s stats as a whole are strongly encouraging: over the past year net bookings grew 28%, recurrent consumer spending jumped 76%, and average games played per user grew 21%. Yes, COVID helped, but Take-Two has also done a great job adding new modes and features that keep gamers coming back for more. In terms of other launches, Mafia Definitive Edition performed well, and PGA Tour 2K21 sold over 1 million units, becoming the fastest selling golf game over the past decade.

It was a relatively solid quarter for new game sales, but Take-Two also does a good job keeping important franchises contributing for many quarter and years. For example, GTA V continues to grow its audience (now 135 million units sold), and GTA Online recorded its best Q2 ever. Red Dead Redemption 2 saw full game sales jump 106%, but stronger engagement in Red Dead Online also pushed the title’s net bookings up 96%. Plus, Borderlands 3, Outer Worlds, Civilization 6, WWE Supercard, and Social Point’s games also all meaningfully contributed. It’s an impressive outcome.

Of course, Take-Two isn’t only cultivating its top franchises. The company’s pipeline is stronger than ever before also because the company remains committed to launching new IP. Plus, as we saw with the acquisition of Playdots this quarter, Take-Two is open to acquisitions, especially in mobile. In fact, right after earnings were released, it was announced Take-Two is in talks to acquire Codemasters, the UK publisher behind the DiRT, F1, Project Cars, and other racing franchise, for nearly $1 billion.

Even though results will be lumpy — and yes so much hinges on GTA VI one day — Take-Two is doing a great job steadily strengthening its foundation. The company is undeniably stronger than ever with clear long-term growth opportunities. Like many publishers, 2020 will be a tough year to beat, and it’s too early to assume what growth (if any) will look like next year. However, if we set our lens on a longer time horizon, it’s not hard to see how Take-Two could continue to emerge as an ever bigger and more diverse industry juggernaut.

#4: Nintendo Has Never Made More Money


It’s been an amazing year for Nintendo, and the company’s momentum has sustained both stronger and longer than anyone would’ve imagined a year ago. Obviously COVID can be thanked, but (apart from early supply chain snafus) Nintendo did a good job capitalizing on the opportunity. Comparing the recent six-month period to last year’s, net sales grew 73% and net profit spiked 244% — now with a margin of 27.7%.

It’s a relatively simple story. Both hardware and software sales accelerated, up 81% and 71%, respectively. The Switch itself is selling well, and the Switch Lite is providing a helpful boost. On the software side, Animal Crossing definitely stole the show (as we’ve mentioned all year). The game sold over 14 million units in the past six months and 26 million total, now the second highest selling Switch game ever (and only 2 million units behind Mario Kart 8 Deluxe). Super Mario 3D All-Stars also contributed in a big way, selling over 5 million units since September 18th. As a result of these hits, other games, and rising downloadable content, digital sales now make up 47% of software sales (up from 36% last year).

Can this momentum sustain from here? Yes and no. The company can certainly sell more Switches — especially as it extends the console lifecycle through Lite and Pro models — and produce other hits. Plus, momentum in digital provides long-term margin tailwinds. That said, mega-success this year is setting the company up for difficult growth targets, and the margins are likely going to recede. In fact, if you look over the past 12 months, both gross margin (52.8%) and net profit margin (25.1%) are the highest they’ve ever been in Nintendo’s 35 years of reported financials. As digital takes hold and licensing revenue kicks in, Nintendo should be higher margin on average than in the past, but maintaining this current level of profitability will be nearly impossible.

That doesn’t mean Nintendo lacks opportunity, however. It appears to have found a way to extend the life of its consoles better than before (which bodes well for future releases), it’s improving at digital expansions, licensing revenue should increase, and the opportunity for a digital subscription service to Nintendo’s catalogue is massive. Nintendo may never be great at everything (like mobile or free-to-play) but perhaps it doesn’t need to be. As long as Nintendo focuses on creating great devices, games, and improved digital experiences it will be fine, albeit more niche than in the past.

🎮 In Other News…

  • Square Enix’s earnings were good but the underperformance of Marvel Avengers is bad news. Fortunately, this company is much bigger than one game. Link

  • Modern Times Group reported. Esports revenue continues to struggle, but the gaming results are performing decently well. Link

  • Glu Mobile’s growing bookings, cash flow, and bookings/DAU caused the company to report a strong quarter. Link

  • Not everyone is thriving. Sega Sammy, which carried the burden of legacy arcade/amusement operations, asks 650 staff to retire. Link

  • Fortnite might make its return to iOS via Nvidia’s GeForce Now cloud gaming service this winter. Link

  • Disney and Epic Games are partnering. Players can earn 2 free months of Disney+ after spending money in the game. Link

  • ESPN cut 10% of its workforce, which heavily affected ESPN Esports. Esports were a bright spot during COVID, but it’s still too tiny to move the needle for a company that earns billions in affiliate fees. Link

  • Immortals Gaming Club raises $26 million and sells its Call of Duty League team to 100 Thieves. Link

  • Tencent leads $25 million round for Avakin Life maker Lockwood Publishing. Link

  • Streamloots raised $7.2 million to further build out its influencer monetization platform. Link

  • Edge, an esports platform that facilitates contracts with players and payments to influencers, raised a $1.5 million. Link

  • Lego Ventures spins out Light Brick Studio to make digital learning games. Link

  • According to Sensor Tower, Pokemon Go has earned over $1 billion in 2020 so far. Link

  • Greg Fischbach, an ex-Activision executive, founded Accelerate Games, and the first project will be Signal Studios' next Toy Soldiers game. Link

🖥 Content Worth Consuming

Apple v. Epic lawsuit could open door to third-party payments — led by esports. “If Apple’s payment processing requirements were to disappear for all apps in its store — as seen in the mobile esports industry now — a competitive ecosystem of payment processors could arrive, creating new and exciting opportunities for app developers, like micropayments, cryptocurrency transactions, and innovative rewards programs. Furthermore, we could see esports and real money tournaments come to cross-play where it doesn’t exist today, such as on Steam, GOG, PlayStation 4, and Xbox.” Link

Elite Game Developers Podcast — Jason Chapman, Konvoy Ventures. “Today I’m talking with Jason Chapman, General Partner at Konvoy Ventures. They are a seed stage fund, investing in the infrastructure technology, tools, and platforms of tomorrow’s video gaming industry. With Jason, we decided to make this episode a more of a discussion, around the topic of user generated content platforms, as it’s of big interest for both of us, as we’ve seen UGC become one of the dominating topics of 2020.“ Link

The Knowledge Project Podcast — Jim Collins: Keeping the Flywheel in Motion. “An earnest student and powerful teacher, mega best-selling author Jim Collins goes under the hood and shows what all enduring companies have in common. We talk luck, leadership, and business longevity.“ Link

Thanks for reading. See you next week! As always, if you have feedback let us know here.

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