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Morgan Stanley analysts made a series of moves on the firm’s research coverage of mobile gaming.
The analysts see a “growing divergence as mobile gaming underperforms PC/console,” which prompted them to cut forecasts by 8% and 18% in 2022 and 2023, respectively. Still, they remain bullish on the sector in the long term.
“Macro conditions give us reason to take a more cautious view in the near-term. The lower levels of user immersion, competitive gameplay, and user retention (relative to PC/console) that are typical of many mobile game genres lead us to believe that customers may simply opt out of spending money on in-app purchases as we move through the economic cycle,” the analysts said in a client note.
As a result, the analysts cut ratings on AppLovin (NASDAQ:APP) and Playtika (NASDAQ:PLTK) to Equal Weight from Overweight, while resuming coverage on Unity Software (NYSE:U) also at EW with a price target of $27.50 per share.
On APP, the analysts see a “significant downside to our prior estimates given its broad exposure to the mobile game industry, both as an ad network that primarily serves publishers and a game publisher itself.”
Similarly, PLTK is likely to face “significant headwinds in ’23, as consumers come under greater pressure” despite still being a best-in-class pure play mobile publisher.
The analysts also upgraded Activision Blizzard (NASDAQ:ATVI) to Overweight as he is growing incrementally bullish on its position as a leading diversified game publisher despite recent reports that the U.S. regulators are likely to oppose Microsoft’s (NASDAQ:MSFT) $69 billion takeover.
Shares of AppLovin and Playtika are down 2.5% and 1.2%, respectively, in pre-open Monday.
