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Right now, like many individual investors, I am thinking about the coming year on Wall Street. What moves should I make? What stocks should I look at? Specifically: How should I position my portfolio?
One company I am almost certain to get rid of is Activision Blizzard (ATVI). I reserve the right to change my mind on this, but data on the video game industry point to a deterioration in the fundamentals. Many headlines throughout the year have trumpeted the fact that the console cycle is aging, and that demand for high-end systems has been satiated.
And there are intrinsic problems with Activision Blizzard itself. The Guitar Hero phenomenon is not as rockin' as it used to be. DJ Hero wasn't as popular as predicted. Such facts take points away from the publisher's thesis.
Technical analysis also goes against the story. Here's an excellent article on ATVI's price action from iStockAnalyst. The bearish conclusion does make an investor reconsider a position in the company.
I would be remiss if I didn't mention criticism of my recent bearish commentary on Activision Blizzard. Comments made on my recent earnings article indicated displeasure at my lack of respect regarding the Blizzard portion of the business.
Yes, it's true: Assets like World of Warcraft and Starcraft do mean a lot to long-term investors.
However, in my particular case, I've held shares of ATVI for a very long period, and I still have a profitable position. If I had sold out earlier, I would have been able to book even bigger gains. For me, the best thing might possibly be to take the position off the table. 2010 could be a year for capital preservation, after all. The reason I'm waiting until 2010 to preserve this bit of capital, by the way, is because it resides in a taxable account.
The way I see it, I can always get back into the stock later on. Why let my gains disappear? Video games are a growth play, but when you see what's happening to Electronic Arts (ERTS) and Nintendo (NTDOY), you simply can't ignore reality: Those who invested in publishers before the recent console cycle should now rethink the short-term prospects for the industry. If you're lucky enough to have a profit (like I am), booking it could be the best strategy.
Disclosure: I own Activision Blizzard; positions can change without notice.
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Reader Comments (Page 1 of 1)
12-29-2009 @ 12:44PM
Alex Schwartz said...
Could not disagree more. Just posted about ATVI in my blog in a three part series:
Part I: http://investsmarter.wordpress.com/2009/12/21/activision-blizzard-atvi/
Part II: http://investsmarter.wordpress.com/2009/12/22/activision-blizzard-atvi-part-ii/
Part III: http://investsmarter.wordpress.com/2009/12/23/activision-blizzard-atvi-part-iii/
I think you are drawing the wrong conclusion if you believe that ATVI's pipeline will be affected by deterioration in video game spending. The Modern Warfare II launch proves that the RIGHT games are still extremely profitable, and ATVI has more "right" games than anyone at this point. ERTS feel victim to having too many low quality games - ATVI has invested heavily in continuing to improve the quality of their core franchises.
Yes, video games are a risky play. Yes, there are probably better places to put your money. However, ATVI represents the best of breed in a sector that is moving from discretionary to consumer staple as the "gaming generation" ages.
12-29-2009 @ 7:47PM
SK416 said...
Disagree. You based your premise on the "deterioration in the fundamentals", one of such fundamentals being "market saturation" of the hardware. This will serve to have no effect on ATVI as it generates revenue by selling software; which it selling in proportion to the amount of consoles on the market.
12-30-2009 @ 1:25PM
Jesse said...
Basing this decision on the "deterioration in the fundamentals" is simply absurd. You have discounted the fact that the majority of Activision Blizzard games also sell on the biggest gaming platform you neglected to mention, the PC. You also failed to include anything about what the Blizzard side of the company is doing in 2010. It might as well be called Blizzard Activision in 2010. Diablo, StarCraft 2, and a WoW expansion pack will be released this year. StarCraft will essentially be released as Three different games, meaning the hard core gamers will be shelling out $180 to get the full experience, and don't forget the original StarCraft is a televised sport in Asia.
I will agree with you if you can answer this simple question: Name one game that Blizzard has released that has not been a blockbuster? (Hint: This is a trick question).
1-27-2010 @ 12:05AM
Blizzardizgod said...
agree with both above me. so, with this saturation, more people are now potential customers. also, $700 laptops now can run WoW@60fps, so every 15 year old who got a laptop for christmas is probably hanging out with Leroy Jenkins right now.
blizzard has 3 ip's dropping in the next 3 years (starcraft2, diablo3, ???), one of which is unannounced, probably something to break the mold of their usually graphic unintensive games.
on activision side, CoD:MW2 is still selling well after grossing $550m in the first 5 days (!!). then add on the entire guitar hero brand, with new DJ hero which got good reviews despite lackluster sales.
but beyond all sales figures, it's important with video games to realize everyone in the industry are all nerds (sorry, but I am too so w/e), so, in an often cultish manner, some developers become, basically, icons. Combined, ATVI owns:
-the best MMO of all time (WoW)
-the best fps of all time (MW2)
-Guitar hero brand
-many other highly reviewed games that didn't reach the popularity of the others
These guys rule the video game world, period. The only really comparable company is EA, but they don't quite have the scope of ATVI.
So, I basically disagree with you.