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Shares of the "big three" U.S. video game publishers, namely Activision Blizzard (ATVI), Electronic Arts (EA), and Take-Two (TTWO), were in focus after an analyst from Piper Jaffray said that this year's Electronic Entertainment Expo, or E3, could prove more of a catalyst this year than in prior years. The analyst noted that video game stocks typically outperform the broader market in the 60 days leading up to E3. PIPER SEES STRENGTH HEADING INTO E3: In a research note to investors, Piper Jaffray analyst Michael J. Olson said that, in the midst of "Fortnite" fears reaching a fever pitch, it was worth looking back at how game stocks typically perform ahead of E3, which is scheduled for June 12-14 in Los Angeles, California. The analyst highlighted that this has historically been a time that the group consistently outperforms the broader market, noting that the main three publishers have an average 5-year move of up 15% in the 60 days heading into E3. Olson added that this year's E3 could prove more of a catalyst than previous years due to a high likelihood of announcement and discussion of so-called battle royale modes being added to major titles later this year, which will help fend off some of the real and perceived risk of share loss to Epic Games' "Fortnite." The analyst said he would "not be surprised" to see battle royale modes added to EA's "Battlefield" and "Star Wars Battlefront II," Activision's "Call of Duty," and Take-Two's "Red Dead Redemption 2." He noted that while not all of these additions would be announced at E3, he expects a mix of announcements and "chatter" on the subject of battle royale efforts. Olson reiterated Overweight ratings on Activision Blizzard, EA, and Take-Two. PREVIOUS PIPER NOTE: Today's Piper note reaffirms a similar sentiment from the same analyst a month ago, when Olson said bigger publishers will catch up quickly to the battle royale trend made famous by "Fortnite" and "PlayerUnknown's Battlegrounds," whose mobile version is published by Tencent (TCEHY) and console version is published by Microsoft (MSFT). Olson said at the time that "Fortnite" and "PUBG" may have had some short-term impact on time/wallet share for big publishers, but that he expected this impact to be temporary as these publishers incorporate similar battle royale modes into existing titles. WHAT'S NOTABLE: Earlier this week, Kotaku reported that Activision's upcoming shooter "Call of Duty: Black Ops 4" will be multiplayer-only and feature a battle royale mode. PRICE ACTION: In afternoon trading, Activision Blizzard and EA fell 2%, and Take-Two slipped about 3.1%.

Shares of Activision Blizzard (ATVI) were trading lower after an analyst from Benchmark said he expects the game maker to report strong first quarter earnings followed by disappointing second quarter guidance. BENCHMARK KEEPS BUY: In a research note to investors, Benchmark analyst Mike Hickey maintained a Buy rating and $80 price target on Activision Blizzard, saying he expects the company to report "strong" Q1 results on Thursday, May 3, followed by "disappointing" Q2 guidance while reiterating their fiscal 2018 performance view. Hickey said that the game giant's Q2 outlook will likely reflect caution over the rise of so-called battle royale games including Epic Games' "Fortnite," which are likely negatively affecting player engagement on "Overwatch" and "Call of Duty." The firm remains optimistic on the stock's medium-term earnings power, and would continue to opportunistically purchase shares, the analyst said. In particular, Hickey said that the Activision segment should have a "strong" product slate for fiscal 2018, with the release of "Call of Duty: Black Ops 4," while benefiting from live service monetization and paid downloadable content. WHAT'S NOTABLE: Gaming website Kotaku reported earlier this week that "Call of Duty: Black Ops 4" will essentially be multiplayer-only, excluding the kind of single-player campaign that has been a part of the franchise for over a decade. In addition, a source told Kotaku that the next "Call of Duty" will include a battle royale mode following the success of "Fortnite" and "PlayerUnknown's Battlegrounds." The mobile version of "PUBG" is published by Tencent Games (TCEHY) while the console version on Xbox One is published by Microsoft (MSFT). PRICE ACTION: In afternoon trading, Activision Blizzard shares are down 1.2% to $67.88. OTHERS TO WATCH: Shares of rivals Electronic Arts (EA) and Take-Two (TTWO) are down a respective 0.3% and 1.4% in the afternoon.