Time to buy video-game stocks?
Investors would be wise to watch for the predictable summer swoon in the shares of video-game companies. Catalysts are in place for a strong second half of 2013.
It will soon be game-on for the video-game companies.
Activision Blizzard (ATVI) and Electronic Arts (EA) have seen their stock prices rise recently, but both of these stocks tend to retreat in summer. Investors, who haven't gotten into the game might consider getting into these stocks on any seasonal pullbacks. Shares of the two largest video game publishers have swooned in June in each of the past five years. June is typically a bad month for tech stocks.
Especially this year, when the year-end holiday season is shaping up to be a huge one.
Activision shares are up 46.6% in 2013, despite a 6% dip after the company posted first-quarter financial results that easily sailed past Wall Street estimates but included a large decline in decline in subscribers for its key "World of Warcraft" title.
The company was also cautious about the upcoming console cycle and gave general market warnings. This has primed the pump for some selling in June.
A stronger second half
Electronic Arts, which has been cutting staff and reorganizing studios to adapt to mobile game platforms, had seen its shares stumble along for most of the year. The stock popped May 7 after the company posted quarterly earnings that surpassed analysts' estimates and raised its guidance for fiscal-2014 earnings.
EA expressed caution about next-generation game consoles. Consumers have held back from buying hardware and software as they await new versions of Sony's (SNE) PlayStation and Microsoft's (MSFT) Xbox, expected later this year. (Microsoft owns MSN Money.)
Xbox is overdue for an upgrade. Microsoft on Tuesday unveiled the new Xbox One, its first gaming console in eight years, and touted its exclusive video and software content, including a "Halo" series produced by Steven Spielberg.
Microsoft said Xbox One would be available later this year at a price to be announced, and that the console would be the first platform to release the next installment in Activision's blockbuster "Call of Duty" shooter franchise.
The existing version of Xbox remains the top selling console in the U.S. even though users know a new unit is coming. Microsoft shipped 8.9 million units during the first nine months of fiscal 2013; revenue from console sales increased 55% in the company's most-recent quarter to $641 million.
A new PlayStation
Sony revealed in September that it had updated the PlayStation console, to be named PS4. It is expected to launch in the fall, as well. This next-generation console is expected to rival PC gaming. It is also expected to incorporate a mobile feature in order to continue game play. A share function will allow game clips to be replayed and/or uploaded to other websites.
Sony's PS3 is the top selling console globally according to VGChartz. But the PS3 was launched in 2006 and the only updates since then have been on the mobility side, particularly the PSP. Play Station fans have waited a long time for an upgrade.
The third part to this investing thesis are the game titles. Although much was made of the loss of "Warcraft" subscribers, Activision's is optimistic about the "Call of Duty" update, tentatively set for a Nov. 5 release. A teaser has been added to Activision's Facebook (FB) page and the game can be pre-ordered now through Amazon.com (AMZN) or Gamestop (GME) or even Toys R Us.
Gamers can unlock a special Ghosts Gun Camo for "Black Ops 2" if they pre-order before July 1. "Call of Duty" is the most successful franchise in gaming history. The last installment made over $1 billion within 15 days, and since the release of the first title in 2003, the series has sold over 100 million copies. Ghosts will be available on both the new Xbox and PS4, but sorry Nintendo - they are skipping Wii U. Pre-order at Best Buy (BBY) and you receive a $15 gift card.
Electronic Arts will be hitting the holidays with "Battlefield 4. Call of Duty" will probably outsell "Battlefield 4" but it will be tough competition. Pre-orders are being taken now for "Battlefield 4" and the title will be released Oct. 31. It is already number four in the USA pre-order chart for the Xbox version at VG Chartz(COD Ghosts has not been tracked yet.)
New consoles, new game titles and summer sell-off are all colliding to unlock a buying opportunity for investors.
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