In this segment from Motley Fool Money, host Chris Hill, Million Dollar Portfolio's Jason Moser, Total Income's Ron Gross, and Supernova and Rule Breakers' David Kretzmann do a quick run through the earnings reports of a pair of video gaming giants and an online hotel booking site.
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Activision Blizzard (NASDAQ: ATVI) brought strong Q2 profits to the table and has great prospects, but investors yawned. On the other hand, Take-Two Interactive (NASDAQ: TTWO) raised its guidance, and a company that hasn't refreshed its biggest franchise in years saw its share price surge ahead.
But for Trivago (NASDAQ: TRVG), the issue is that sometimes good news on the top line doesn't make its way down to the bottom line -- especially when you're spending a ton on marketing.
A full transcript follows the video.
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This video was recorded on Aug. 4, 2017.
Chris Hill: Onto video game stocks, Activision Blizzard's strong second-quarter profits were not enough to impress Wall Street, but Take-Two Interactive followed up a strong first-quarter report with raised guidance. Shares of Take-Two up more than 10% this week, David.
David Kretzmann: Yeah, Take-Two is really doing really well. And that's without any major game launches this year. Grand Theft Auto is really their hallmark franchise game, and it was last launched four years ago. Grand Theft Auto online had its best quarter ever this year. So, four years later, still going on really strong. A key metric to watch with Take-Two, with a terrible name, is recurrent consumer spending, which is the things a player buys within a game after they buy the actual game itself. Recurrent consumer spending was up 71% for the quarter, and now makes up 58% of total sales. That's very high-margin revenue. Going over to Activision Blizzard, the company grew earnings more than 80% this quarter. Revenue grew by a third, and they still have over 400 million monthly active users across their segments. Within their Blizzard segment in particular, I think it will be really interesting to see how this OverWatch Global Professional Esports League goes. They sold seven franchises in cities worldwide. The buying price was $20 million, and that include some owners like Robert Kraft of the New England Patriots, Jeff Wilpon of the New York Mets, So, you're bringing into some traditional sports into this esports category. It'll be interesting to watch.
Hill: What's the name of that terrible metric again?
Kretzmann: Recurrent consumer spending.
Hill: I have a solution here. It's really game addict spending. GAS. It's the GAS metric.
Kretzmann: I like it.
Hill: Trivago's second-quarter revenue rose more than 65%, but shares of the online hotel booking site taking a nosedive on Friday, Jason.
Jason Moser: Yeah. Really attractive top-line growth there. I think it didn't translate quite to the earnings that maybe the market was looking for. Trivago's an interesting business. I think it's worth a look. But, by the same token, you have to wonder, when it comes to this travel space, why is it better to invest in something like a Trivago versus something like an Expedia or a Priceline, the big boys in the space, the OTAs? Because that's how Trivago is making its money anyway, really, is coming from your OTAs, Expedia and Priceline.com. So, they're outspending companies like TripAdvisor on marketing hand over fist, and that's working for them right now. When they hold back on that, it'll be interesting to see how that affects the business. But, they focus on doing one thing really well, and that's getting you into a hotel room --
Ron Gross: Making commercials.
Moser: -- getting you into a hotel room for a very reasonable price. So, as long as they continue to feed that metasearch engine, I think they'll continue to do OK.
Chris Hill has no position in any stocks mentioned. David Kretzmann owns shares of Activision Blizzard, PCLN, Take-Two Interactive Software, and TRIP. Jason Moser owns shares of TRIP. Ron Gross owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard, PCLN, Take-Two Interactive Software, and TRIP. The Motley Fool recommends Trivago. The Motley Fool has a disclosure policy.