How Fortnite Cratered Stocks Today – The Motley Fool

What happened

It took more than a year, but Fortnite begins to worry the future of some of the biggest names in video games. In the last 24 hours, Electronic Arts (NASDAQ: EA) and Take two Interactive (NASDAQ: TTWO) announced less than impressive earnings and forecasts, dropping their shares by 13.3% and 13.8%, respectively, during Wednesday's trading. Without surprise, Activision Blizzard (NASDAQ: ATVI) fell 10.1%, investors fearing that its report on next week's results does not meet expectations.

So what

Let's start with Electronic Arts, which reported the benefits first. Revenues for the quarter increased 11.1% to $ 1.29 billion and the company went from a net loss of $ 186 million a year ago to a gain of $ 262 million, or 0 $ 86 per share. Analysts expected earnings per share of US $ 1.94 for a turnover of 1.8 billion USD.

Source of the image: Getty Images.

At Take-Two Interactive, revenues jumped 159.7% to $ 1.25 billion, Red Dead Redemption 2 took the industry by the storm. Net income increased from $ 25.1 million a year ago to $ 179.9 million, or $ 1.57 per share. Analysts were expecting $ 2.75 per share.

What really worried investors is the advice given by Electronic Arts and Take-Two for the year. EA expects revenues of $ 4.875 billion, down from Wall Street's $ 5.2 billion estimate, and Take-Two said it expects revenues of $ 530 to $ 580 million for the fourth quarter, which is well below the forecasts of an badyst of $ 606 million.

Now what

Investor fears had about Fortnite finally appear in the financial forecasts, even if they did not greatly affect past results. The game could generate revenues of $ 3 billion or more in the hardcore player market, where companies such as Electronic Arts, Take-Two Interactive and Activision Blizzard account for a significant portion of their revenue.

The management of the three companies tried to dispel the fears of investors a quarter ago by saying that Fortnite attract new players to video games and grow the cake for the entire industry. This may not be the case in 2019, and Fortnite can be like a black hole, sucking all the energy from other video games.

The problem for video game companies is that they do not have an easy answer to Fortnite. The game boasts millions of active users and the large installed base simply attracts more customers. Building a new royal battle game could take years, and creating a similar user base would be long. Industry may have to wait until the popularity of Fortnite fades, and no one knows when it will be.

Travis Hoium does not own any of the shares mentioned. Motley Fool owns shares and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. Motley Fool has a disclosure policy.