There seems to be a gap in major releases of video games until the fall. There are a few of note, but none of the big record-breaking franchise releases. I did not actually realize that summer was a slow time for video game releases, but every company in the fall will need to go up against the release of GTA V and the new consoles. Money is usually tight, so people are likely to space out their purchases, which could mean less than stellar sales initially. That could do a number on the 2013 annual earnings as some fall purchases move into 2014.
Setting up the field
Grand Theft Auto V opens the fall with a release in September and will be a massive blockbuster. This should be a huge win for Take-Two Interactive Software, Inc. (NASDAQ:TTWO), but with development and marketing costs already incurred, it might take some time for the real profit to be realized. Marketing will be intense into release and right after it, but sales will trickle in over time. September is pretty far removed from December, but anyone on a budget might need to wait for the holidays. Apparently, not everyone is as impatient as I am especially when money is involved.
Activision Blizzard, Inc. (NASDAQ:ATVI) mentioned in its last earnings call that Call of Duty: Ghosts will see increased competition, but that game is coming out in November. Call of Duty has been a record-breaking franchise in every one of its recent iterations, but this time there might just be too many other things to spend money on to achieve that level. I am not really concerned about people’s desire to want to own the game, just about the decision of what to buy when. Records and hype are important around release even if revenue is more important over the following few months.
Activision Blizzard, Inc. (NASDAQ:ATVI)’s weakness is that it produces games under the same banners and there are not too many. Warcraft has ground to a halt with World of Warcraft, though a card-based free-to-play strategy game is due out this summer. A lot of people are negative on Activision Blizzard, Inc. (NASDAQ:ATVI) because of the loss of WoW subscribers, but the company is entering the new online gaming model.
Hearthstone will be a free-to-play game with revenue dependent on people buying packs of cards or something else. It is the mobile model of gaming, and will probably end up on tablets and phones. I remember reading a few articles a year ago recommending selling Activision Blizzard, Inc. (NASDAQ:ATVI) since subscribers have been on a downtrend, as if the company did not have a slew of other massive titles bringing in money. The stock is up since those articles I read were published, but caution is warranted.
What comes after?
The lack of diversity at Activision Blizzard, Inc. (NASDAQ:ATVI) does create problems if a game is not set to deliver, but even if Call of Duty: Ghosts is more of the same, I think it will do well. First person shooters do not really have many new places to go, and the Call of Duty formula seems to be working well. As much as I like Activision Blizzard, Inc. (NASDAQ:ATVI), I would lighten any position I had since the company was in the $12s.
I have been a fan for a long time, but I really think the company is going to lose some momentum. I used to write calls for the company, which I could continue doing as the stock cools. I cannot think of anything really anticipated from Activision Blizzard, though it is publishing Bungee’s Destiny. The transition to new consoles will also slow the entire industry’s momentum as people buy the latest hardware.
After shrinking your position in Activision Blizzard, consider Take-Two Interactive Software, Inc. (NASDAQ:TTWO). It will probably have the final big release of this console generation, though Call of Duty: Ghosts will be on both generations. The omnipresence of Ghosts will probably increase the cost of the game, because the next generation won’t be compatible with the previous one. That means the game needs to be ported to all the other systems.
GTA V is only planned on the current generation. I would buy Take-Two Interactive Software, Inc. (NASDAQ:TTWO) on any dips between now and the release of GTA V, then I would sell into any hype. That seems pretty short-term, but until we are a few months into the next generation, I would not want to hold anything other than a smaller position in Activision Blizzard. It has a 1.30% dividend yield, which is small but something in return for patience.
I think it will be successful but over the few months after release. I think it is safe to say it will be third behind GTA V and Call of Duty, but might have a lot more revenue potential over the longer-term. I still do not think it is time to take a position in Electronic Arts Inc. (NASDAQ:EA). I just cannot get a sense of the blockbuster game that will really drive it.
Conclusion
The most recent earnings calls for all three companies were incredibly boring, because there just is not much to discuss. The next few months are likely to stay fairly quiet. This is a good time to re-balance some positions. Activision Blizzard is worth lightening up on to lock in some gains. If the company ever heads down into the $12s then it might be worth buying more, but its lack of diversity in titles makes it riskier than its numbers would suggest.
November is the next landmark for the company, unless Hearthstone becomes immensely popular. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has the spotlight among video game publishers, because GTA V should be huge though lack of next-gen support might hurt it.
Nihar Patel has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive . The Motley Fool owns shares of Activision Blizzard. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Video Game Lull Until the Holidays originally appeared on Fool.com is written by Nihar Patel.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
