Video game maker stock THQ Inc. (NASDAQ: THQI) has just filed for bankruptcy leaving Electronic Arts Inc (NASDAQ: EA), Take-Two Interactive Software (NASDAQ: TTWO), Majesco Entertainment Co. (NASDAQ: COOL) and Activision Blizzard (NASDAQ: ATVI) as the last gaming stocks trading on major exchanges that produce games for the Microsoft Xbox or Sony PlayStation. THQ Inc. was a victim of competition from stronger players like Electronic Arts and Activision Blizzard, but the entire video-game industry is also facing difficulties as consumers increasingly turn to often free mobile and online games rather than expensive packaged titles. Moreover, the recent tragedy in Newtown is once again shining an unfavorable spotlight on the makers of violent video games. In fact, a bill was just introduced by Senator Jay Rockefeller that directs the National Academy of Sciences to examine whether violent games and programs lead children to act aggressively. That’s not particularly good news as combat titles generate more than 20% of video-game software sales plus some parents already refuse to buy them for their children. With that in mind, which video game stocks, Electronic Arts, Take-Two Interactive Software, Majesco Entertainment or Activision Blizzard, are best positioned to escape the fate of THQ Inc.? Here is a quick rundown on all four:
Is Electronic Arts Inc (NASDAQ: EA) About to Have a Nasty Earnings Miss?
Electronic Arts develops, publishes, and distributes interactive software worldwide for Internet-connected consoles, personal computers, mobile phones, tablets and social networks. Among its popular titles would be “Medal of Honor,” the Madden football games and the FIFA Soccer franchise. On Wednesday, Electronic Arts fell 3.42% to $14.40 for a market cap of $4.39 billion. Electronic Arts has a 52 week trading range of $10.77 to $21.45 a share plus the stock is down 30.1% since the start of the year and down 75.2% over the past five years. Nevertheless, investors have been betting that there will be a new Xbox console from Microsoft Corporation (NASDAQ: MSFT) by next fall and perhaps an updated PlayStation from Sony Corporation (NYSE: SNE) as well with gaming stocks tending to outperform ahead of the new console cycle. However, Doug Creutz of Cowen & Co recently raised a “near-term caution flag” that Electronic Arts based on a conviction that the company could have a fairly nasty earnings miss in the back half of the fiscal year, but he also predicts the arrival of new consoles and improved game sales next year will lead EA outperforming other video game stocks.
Take-Two Interactive Software (NASDAQ: TTWO) Has Investors Carl Icahn Adding Shares
Take-Two Interactive Software is a developer, marketer and publisher of interactive entertainment for consumers worldwide whose products are designed for console gaming systems, handheld gaming systems and personal computers - including smartphones and tablets. Take-Two Interactive Software is also the maker of the somewhat notorious “Grand Theft Auto” game. On Wednesday, Take-Two Interactive Software fell 5.37% to $11.98 for a market cap of $1.09 billion. Take-Two Interactive Software has a 52 week trading range of $7.37 to $16.99 a share plus the stock is down 11.6% since the start of the year and down 35.2% over the past five years. Last month, regulatory filings showed that activist investor Carl Icahn had increased his stake in Take-Two Interactive Software Inc to 12.9% from 11.69%. The increase apparently came after Take-Two Interactive Software had announced that "Grand Theft Auto V” was on track to be launched this coming spring. Otherwise, its worth mentioning that Take-Two Interactive Software has been considered a potential acquisition target ever since Electronic Arts made moves to buy it in 2008.
Majesco Entertainment Co. (NASDAQ: COOL): The Next Video Game Shoe to Drop?
Majesco Entertainment is a provider of video games for the mass market and is focused on developing and publishing a wide range of casual and family oriented titles on leading console and portable systems. On Wednesday, Majesco Entertainment fell 2.65% to $1.10 for a market cap of $46.03 million. Majesco Entertainment has a 52 week trading range of $0.86 to $3.17 a share plus the stock is down 54.9% since the start of the year and down 24.1% over the past five years. Back in September, Majesco Entertainment reported that revenue dropped from $19.5 million to $9.1 million while its net loss widened from $1.1 million to $3.2 million. Majesco Entertainment blamed the sharp falls on aging major gaming platforms. However, analyst Sean McGowan at Needham & Co. was pessimistic about Majesco Entertainment’s future and said that the company could come out even weaker from the transition to new devices due out this holiday season. Majesco Entertainment’s next earnings report is due out on January 14th.
Activision Blizzard (NASDAQ: ATVI) Hits the $1 Billion Mark 15 Days After Its Latest Release
Activision Blizzard is a worldwide online, PC, console, handheld and mobile game publisher. Activision Blizzard's portfolio includes best-selling video games such as Call of Duty®, Spider-Man™, X-Men™, James Bond™ and TRANSFORMERS™, Spyro™ and Blizzard Entertainment's® StarCraft®, Diablo® and Warcraft® franchises. On Wednesday, Activision Blizzard fell 2.35% to $10.85 for a market cap of $12.07 billion. Activision Blizzard has a 52 week trading range of $10.45 to $13.01 a share plus the stock is down 11.9% since the start of the year and up 62.4% over the past five years. Earlier this month, Activision Blizzard announced that sales of “Call of Duty: Black Ops II" crossed the $1 billion mark in worldwide retail sales 15 days after its November 13th release – slightly better than the 16 days it took to hit the $1 billion sales mark for last year's "Call of Duty: Modern Warfare 3.” However, investors and Wall Street were not impressed with Atul Bagga of Lazard Capital noting that the release included Black Friday while the release for the previous year did not. He also added that players of “Black Ops 2” seemed to log fewer playing hours on Xbox Live and the PlayStation Network than on previous versions – which would suggest “some decline in engagement.”
The Bottom Line. Majesco Entertainment looks to be the weakest video game stock while Take-Two Interactive Software and Activision Blizzard would be the strongest with Electronic Arts somewhere in between. And while it might be a good time to buy right now as video game stocks, they are definitely not for risk adverse investors.