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Investors might be overestimating videogame players’ desire to get out and rediscover nature.

The hype for GameStop has ironically excluded the companies that make the game disks filling those stores. Videogame publisher stocks have been among the hardest hit in the recovery trade, with Activision Blizzard, Electronic Arts, Take-Two Interactive, Ubisoft and Nintendo averaging a drop of more than 10% this year. That is even after including Take-Two’s nearly 7% jump Wednesday following a strong report for its fiscal fourth quarter that ended March 31. EA, Activision, Nintendo and Ubisoft are still averaging a 27% discount to the Nasdaq Composite, according to FactSet, on a forward-earnings basis.

The reason isn’t complicated. Investors worry that the surge in gaming sparked by the pandemic will end as players get back to their workplaces and classrooms. The five aforementioned game makers are indeed coming off strong runs that will be hard to duplicate in a normalized world. Nintendo’s revenue jumped 34% in the fiscal year ended in March, while EA, Ubisoft and Take-Two averaged 28% growth in net bookings for the same fiscal year. Activision, which runs on a calendar year, saw net bookings jump 32% for the 12-month period ending in March. All those growth rates represented significant accelerations from the previous years; for EA and Ubisoft, it was their best growth in a decade, according to FactSet.

Despite investor concerns, game habits formed during the pandemic could yet prove sticky. On his company’s earnings call Tuesday, Take-Two’s typically conservative Chief Executive Officer Strauss Zelnick projected a “moderation" as the world normalizes, but added that the overall addressable market for games “will be notably larger going forward than it was pre-pandemic," thanks mostly to an influx of new gamers.

This year will also feature some major releases of high-profile games for the newest Xbox and PlayStation consoles, including the first Battlefield sequel from EA in three years. And the installed base of those consoles should improve, though they will likely still be hampered a bit by the continuing semiconductor shortage.

Major publishers have also finally come around to the market opportunity sparked by the popular “Fortnite." Activision and EA now both have major free-to-play properties in the shooter genre, and Take-Two will dip its toes in that water by making a new version of its “Grand Theft Auto Online" blockbuster free for PlayStation 5 users for the first three months after its launch in November.

That could run the risk of cannibalizing a consistently lucrative property for the company. But Michael Pachter of Wedbush notes that Activision pulled a similar move by making its “Call of Duty: Warzone" game free to play last March, which ended up driving increased interest in the franchise and a 40% jump in “premium Call of Duty" sales for the full year.

The boost over the past year has also allowed game makers to bulk up a bit for the future. Activision CEO Bobby Kotick said the company is planning to “triple the size of certain franchise teams" compared with 2019, while Mr. Zelnick noted that Take-Two brought on 700 new developers in the most recent fiscal year. Such moves don’t guarantee future blockbusters. But the professional managers of game companies are well accustomed to the sways of the hit-driven business, and tend not to write big checks based on temporary euphoria.

This story has been published from a wire agency feed without modifications to the text.

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