Tuesday, August 21, 2012

AGTurbo Says: State of the Industry- Giants into Midgets

While it is a great time for videogames, it is a hard time for large gaming corporations. EA, Take Two Interactive, Activision, Sony, and Gamestop had 52 week lows on stock prices within the past month. And where there's sales figures, there's AGTurbo. He's back with another AGTurbo Says.

Why are the stock prices so low for the industry leaders?  Activision is trying to get sold off by Vivendi Universal so they can have liquidity to deal with debt problems. While Activision has Call of Duty and World at Warcraft, their profit has YOY for fiscal quarter Q2 2012 gone from $330 million to $110 million (Q2 2011). While Activision is in a better position than some other publishers, investors know that World of Warcraft is past it peak and the next Call of Duty might not break all the sales records like the previous games.

We'll start the bidding at 1 BILLION DOLLARS.

For EA, a rumor about being bought out rose their stock price by 9%. Star Wars the Old Republic underperformed, and Battlefield 3 did not have the expected returns. While EA has Origin and multiple blockbuster titles, they do not have mega blockbusters like Activision. THQ is only one game flop away from insolvency. For Take Two Interactive, Max Payne 3 and Spec Ops: The Line underperformed, and there have been no new details about GTA V and Bioshock Infinite might not release within March 2013 fiscal year. If you had gotten a girl pregnant when the GTA V trailer aired, that baby would have been born by now. For the past 9 months the only thing new to come out of GTA V is 2 new screenshots. Sony’s losses in the gaming division can be solely attributed to the Vita. 30% of all Vitas sold in North America happened launch week. 6 months after launch, the Vita has sold less than 700,000 units. While the  3DS was criticized  for a weak launch, it sold 2.5X faster than the Vita when comparing for the first 6 months.

Gamestop is hitting lows due to weak retail sales. NPD first 7 months of 2012, total revenue is down 25%. Every month of 2012 had total percentage decreases of at least 20%. Hardware has done even worse than software averaging 29% in dollar sales. While Gamestop have had increases in digital sales, digital sales only makes up 15% of the company, and does not offset losses in retail. Retail for videogames in general hasn’t been great. In 2008, NPD reported a record $22 billion in revenue. Since 2008 there have been nothing but declines in retail. Now NPD is expecting $14.5 billion revenue for 2012. That is a 34.1% reduction the past 5 years for video games at retail.

A perfect excuse to run this picture again.

Investing in video game stocks might be one of the most ill advised things to do. The video game industry is changing rapidly. What game series and companies can be sustainable and have solid profits consistently for the next 20 years let alone 5 to 10? Even though EA and Activision are the biggest two publishers in the game, they can get bought out. Atari, GT Interactive, Sega, Midway, were once the 2nd or largest publisher during their prime. Now they are fractions of their former glory, or they don’t even exist. A good thing about this is that the traditional model for publishing is weakening, creating alternatives that weren’t as feasible as before.


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