Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA): Why These Three Game Stocks Are Set to Drop

Debt issuance…for acquisition?

A company most often issues shares when their price is at a high, not when those shares are expected to move even higher. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) took advantage of its soaring share price by selling $250 million of convertible senior notes.

The financing will not dilute existing shareholders, but happen ahead of Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s highly anticipated Grand Theft Auto V release in September 2013, which should bring in positive cash flow for the company.

Indirectly, the $500 price tag of Microsoft Corporation (NASDAQ:MSFT)’s Xbox One could deter consumers from buying premium game titles. The timing of the GTA V release coincides closely to both consoles’ release dates in November 2013, which means all three product launches will be fighting to win over consumers’ wallets.

EA data by YCharts

Conclusion

Investors exposed to this sector should anticipate weak share performance for game makers in the months ahead. Either initial console sales will be slow, or those consoles’ monthly sales growth will decline after the Xbox One and PS4 are launched. Unfortunately, game makers’ share prices aren’t reflecting either possibility right now.

The article Why These 3 Game Stocks Are Set to Drop originally appeared on Fool.com and is written by Chris Lau.

Chris Lau has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive . The Motley Fool owns shares of Activision Blizzard.

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