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Activision Blizzard, Inc. (ATVI), Microsoft Corporation (MSFT): How to Trade This Gamer-Centric Company

The management of Microsoft Corporation (NASDAQ:MSFT) recently stated that it is eyeing 100 million lifetime unit sales of Xbox 360. But its Xbox One is expected to have over 300 million units in lifetime sales, which is far greater than the current users of Xbox and Playstation, combined. Even Sony Corporation (ADR) (NYSE:SNE) revised its internal estimates recently, as restrictive policies in Microsoft Corporation (NASDAQ:MSFT)’s Xbox, propelled the sales of Playstation 4.

Now that Microsoft Corporation (NASDAQ:MSFT) has allowed offline gameplay and permits the playability of used games, its console has regained its popularity. However, it has certainly lost those early birds who shifted to Playstation 4 for its unrestricted gameplay. But that’s just speculation (and guesstimates), as both Sony Corporation (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) are yet to come up with hard numbers.

According to fiscal year 2014 estimates, Sony Corporation (ADR) (NYSE:SNE) is expected to sell over 10 million Playstation 4 units while Xbox One is expected to sell around 5 million units. But these are far lower than 2011 sales numbers wherein, Sony Corporation (ADR) (NYSE:SNE) sold 14.1 million PS3 units and Microsoft Corporation (NASDAQ:MSFT) sold 14.4 million Xbox 360 units. This is primarily because most of the games that will be released in 2013 and 2014 will be backwards compatible. This means that PS3 and Xbox 360 consoles can still handle the upcoming game titles, but probably at lower graphics settings.

How to proceed

The estimated slowdown in console sales will certainly hurt Sony Corporation (ADR) (NYSE:SNE) and Microsoft. But regardless of which console is the winner, Activision stands to benefit due to its cross platform availability, and the absence of any significant competitive threats. I believe that the lack of new gaming titles in 2013 will most likely entice gamers to purchase Ghosts.

But, to be frank, I don’t know whether Ghosts will be able to revolutionize the gaming experience. That’s a big task to fathom, and companies have lost fortunes trying to find that golden egg. However, I’m confident that the market hype will push its shares north, at least until its reviews are out.

So I’d recommend a long position in Activision until the game is launched. Conservative investors can dump their positions just before the release of Ghosts. And well versed traders can hold onto their positions, and create a straddle to hedge out any rude surprises. Here’s an explanation of how straddles work.

The article How to Trade This Gamer-Centric Company originally appeared on and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and Microsoft. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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