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GameStop Corp. (GME), Activision Blizzard, Inc. (ATVI), Zynga Inc (ZNGA): How the Gaming Industry Is Getting its Head Chopped Off

Activision Blizzard, Inc. (NASDAQ:ATVI) also faces competitive headwinds with its Call of Duty titles. For a while, the shooter franchises were dominated by Call of Duty, but now the Battlefield franchise has been giving the company some difficulty. Battlefield 4 will be coming to both PlayStation 4 and Xbox One on October 29in the United States. Call of Duty: Ghosts will be released on November 5. Activision Blizzard, Inc. (NASDAQ:ATVI)’s next blockbuster franchise is being released six days after the launch of Electronic Art’s sequel to Battlefield. This means that a gamer’s budget will be used on Battlefield 4 just because it was released six days earlier than Call of Duty: Ghosts.

Being six days late could cost the company a lot of money. This is why teachers send kids to detention when they’re tardy for school.

This is going to be a tough year for Activision Blizzard, Inc. (NASDAQ:ATVI). Analysts on a consensus basis anticipate the company to report a 28% decline in earnings for fiscal year 2013.

Social gaming heading south

Zynga Inc (NASDAQ:ZNGA) is heading for the shark pit. This company has difficulty with retaining video gamers on its platform. The company hopes to turn around the decline in demand by releasing its portfolio of games on mobile. Zynga Inc (NASDAQ:ZNGA) is basically banking on the growing adoption of smartphones in order to stimulate demand for its games.

There is almost no barrier of entry to developing video games for application stores. This means that the market for mobile video games will be crowded. Small teams of video game programmers all over the world will eat away at the demand for Zynga Inc (NASDAQ:ZNGA)’s portfolio of games.

Over the past year, the monthly active user figure has declined from 306 million to 253 million. The decline in its user base may be off-set by some mobile users, but because the company already operates on such large a scale, it’s doubtful that the lost demand from social networks will be off-set by the increasing demand in mobile. Zynga Inc (NASDAQ:ZNGA)’s games reach a market saturation point and hit the decline phase of demand in a relatively short period of time. Analysts on a consensus basis anticipate the company to report a 171.40% year-over-year decline in earnings.

Conclusion

GameStop Corp. (NYSE:GME) and its legacy business model would need to be changed in order for the company to stay in business. Activision Blizzard, Inc. (NASDAQ:ATVI) is being hit by a wave of competition lowering the overall appeal of playing World of Warcraft. It is highly likely that the user base of World of Warcraft will continue to decline unless the company were to release World of Warcraft on Xbox One and PlayStation 4 in order to extend the life cycle of the franchise. Zynga Inc (NASDAQ:ZNGA) is in serious trouble as there is no barrier of entry into the mobile space, which is something the company is depending heavily upon in order to grow earnings.

The article How the Gaming Industry Is Getting its Head Chopped Off originally appeared on Fool.com and is written by Alexander Cho.

Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and GameStop. Alexander 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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