It's easy these days to get excited about video game stocks. But investors should beware: Not everything is what it seems.

Part of the recent enthusiasm around video game stocks comes from game maker Activision's (ATVI) announcement on Thursday that it was raising its guidance for its Q1 results, which will be released on May 6. The company expects earnings of 72 cents per share, up from its earlier forecast of 70 cents per share. Shares were up nearly 4% on the news and the stock is up about 19% for the year.

Nintendo is also the source of some intrigue as it pushes ahead with ambitious plans to bring video games to the classroom and to implement 3D video game technology. Plus, the company is rolling out a souped-up DSi video game console with a bigger screen.

We all talk about the fundamentals behind an investment idea, but sometimes you have to pay more attention to the observed price action. That's what I was thinking today while checking out Activision Blizzard (ATVI).

I have been watching this publisher of entertainment software closely as of late, wondering if it was time for me to get back in. Compared to other similar companies such as Electronic Arts (ERTS) and Take-Two Interactive (TTWO), I think Activision Blizzard offers the best potential for both the console market and online gaming.

Take-Two Interactive (TTWO) is the kind of stock I want to take a chance on but just can't bring myself to do so. The situation can be risky unless a fresh bit of Grand Theft Auto content is about to come out into the marketplace. Then again, those who bought ahead of the Q1 earnings report, released yesterday after the bell, are pretty overjoyed this afternoon, seeing that the stock is, at the time of this writing anyway, up well over 9%.

Net sales increased 9%. The adjusted loss from continuing operations was 31 cents per share. Last year at this time, shareholders were looking at a loss of 56 cents per share on the same basis. Reuters says the analyst call was for the red ink to equal 51 cents per share. Good job, management.

Are you still suspicious of the $6.5 billion Facebook valuation that resulted from Digital Sky's $100 million investment last July? And doubtless, the $15 billion valuation implied by Microsoft's (MSFT) 2007 investment in the company was, to say the least, aspirational. Well, the insanity is continuing to mount – throughout the Facebook ecosystem. A recent report by Global Silicon Valley Partner's NeXt Up Research organization puts the price tag of Zinga, the Facebook application developer, at a whopping $3.3 billion ... half of Facebook's!

Granted, Zynga has done a few things to wow social media market-wachers and investors. NeXt Up Research forecasts 35% growth for this company over the next four years and just upped its 2014 revenue projection to $1.1 billion. The previous estimate was only $460 million. What could possibly justify these numbers? Well, Zynga has grown from 30 million users to 230 million in only 10 months, largely as a result of the strength shown by Facebook over this period. Farmville has been the company's engine, with close to 80 million monthly active users.

Earlier in the week, I discussed the disappointing reaction concerning Electronic Arts (ERTS) and its most recent quarterly report. Just a couple days later, Activision Blizzard (ATVI) released its own three-month numbers, and the situation was completely different. The market liked the data, deciding to give the stock a bid.

There are three very positive elements to the fourth-quarter story that are obviously intriguing investors. First, on an adjusted basis, the publisher delivered 49 cents per share on the bottom line, which, according to Reuters, is six pennies ahead of projections. Second, shareholders have a $1 billion repurchase initiative to look forward to. Third, management believes it's time to directly distribute some of the cash-flow spoils to its true believers: A 15-cent annual dividend has been declared.

Electronic Arts Inc. (ERTS) was down in the after-hours session by over 9% on the heels of the gaming publisher's Q3 report. Non-GAAP sales were off by over 20%. Adjusted income came in at 33 cents per share. This was two cents higher than expectations according to my earnings preview, but a lot less than the 56 cents per share earned in the comparable frame.

The press release mentions the lower quantity of titles released during the holiday season as being a driver of the decline in revenue (a tough European market was also cited). That may be, but it doesn't absolve EA of its fundamental challenges.

THQ (THQI), a video game publisher whose colleagues include Activision Blizzard (ATVI) and Electronic Arts (ERTS), reported very good news this week. For the third quarter, non-GAAP income was 35 cents per share. In the comparable frame, a loss of 14 cents per share was posted.

This obviously represents a vast improvement, although it should be noted that it didn't come on the back of a big sales increase. On a reported basis, the top line was flat, and on a non-GAAP basis, it was down more significantly. This is important to note, because it would have been nice to have read about a revenue expansion, considering the way the gaming industry has been suffering.

Well, I finally did it. Last week, I sold my position in Activision Blizzard (ATVI), at a price of $10.62 per share. I thought about it long and hard, but in the end, I felt it was the right thing for me to do at this time.

In case you haven't noticed, shares of the video game publisher have been in something of a downtrend as of late. The industry isn't what it used to be. Gaming isn't going away, certainly, but those who follow this sector will no doubt agree that the growth is possibly no longer there, at least for the short term.

Take-Two Interactive (TTWO), a video game publisher whose competitors include Activision Blizzard (ATVI) and Electronic Arts (ERTS), actually held up well Thursday after the company issued its Q4 report. I was honestly expecting a sell-off after the news. Why? The video game industry just isn't popular these days, so I figured the market would have found some excuse to send the shares packing. To my surprise, Take-Two gained over 1.8% in the regular session and then another 3% in the after-hours following the release.

Revenues increased 6%, but the action was in the per-share profit line. On an adjusted basis, Take-Two brought home 9 cents per share versus 2 cents per share in the fourth quarter of 2008. But I don't think the market cared too much about the data. After all, guidance for Q4 had already been announced near the beginning of the month. At that time, the stock was punished for the bad outlook and the upcoming GAAP loss. And I mean really punished. It lost 30% of its value at one point.

Does it seem to you like the entire video game trade is unwinding like a venomous snake, ready to plunge its fearful fangs into any individual foolish enough to invest in the sector? I've already written about my unfortunate timing related to GameStop (GME), and I've covered the bad news surrounding console giant Nintendo (NTDOY). What's next in the stream of negative headlines?

How about Take-Two Interactive (TTWO)? That stock was down 30% in afternoon trading at the time of this writing. 30%! According to The Wall Street Journal (subscription required), management issued some poor guidance that has shaken the confidence of market players. Add to that the general state of the retail environment, and you've got yourself a decidedly awful combination.

Shanda Interactive (SNDA), an electronic media company based in China that distributes online games and other content, reported Q3 earnings on Tuesday after the bell. According to our earnings preview, analysts were expecting 88 cents per American Depositary Share (ADS). On a reported basis, 90 cents per ADS was recorded. On an adjusted basis, the business achieved $1.08 per ADS.

Shanda not only did well in terms of an earnings beat, but it grew the top line quite admirably. Gross margin, unfortunately, saw a dip on both a year-over-year and a sequential basis.

While the big news today may be the release of Activision Blizzard's (ATVI) new Call of Duty title, there's other stuff going on in the world of video games for investors to ponder. Electronic Arts (ERTS) issued its Q2 report yesterday after the bell. The numbers weren't too bad, but the market was not excited at all by them, probably because it knows that EA still has a lot of work to do in terms of better positioning itself for the future.

Adjusted revenues were up a scant 2%. Earnings per share, excluding items, actually showed a profit of 6 cents. This was a lot better than the loss of 6 cents per share seen in the year-ago frame. The company also managed to generate a small amount of cash from operations in the quarter instead of using a whole bunch like it did last time around.

Activision Blizzard (NASDAQ: ATVI) published third-quarter results on Thursday after the bell. I can't say I was wholly taken with them. I know the best is probably yet to come once the Christmas shopping season really gets under way, but I was a little disappointed that the company saw a decline in adjusted profit.

Excluding items, Activision Blizzard made 4 cents per share this quarter versus the 7 cents per share made in last year's similar period. Well, did I say I was a little disappointed? Make that a lot disappointed. After all, this is supposed to be the publisher with the best pipeline on the block, the one with the Guitar Hero franchise and a great portfolio of licensed intellectual properties.

Viacom (NYSE: VIA), a content player in competition with News Corp. (NASDAQ: NWS), Time Warner (NYSE: TWX), Sony (NYSE: SNE), and General Electric's (NYSE: GE) NBC Universal, issued Q3 numbers today. If we had a different market on our hands, I think the stock would have reacted better to the news. Revenues were down 3%, but adjusted income rose 25% to 69 cents per share. According to Bloomberg, the bottom line came in well ahead of estimates, which were pegged at 57 cents per share.

Sounds good, doesn't it? Well, the company's A shares are down slightly as I write this by about 0.6%, and the B shares are just about flat. Like I say, if the broader indexes were in an uptrend this afternoon, we probably would have seen a pop in the stock.

Activision Blizzard (NASDAQ: ATVI) remains confident in its guidance for full-year earnings. According to StreetInsider.com, management is still looking for sales of $4.5 billion on the top line and adjusted earnings of 63 cents per share on the bottom line.

The publisher, which competes with Electronic Arts Inc. (NASDAQ: ERTS), should benefit from recent hardware price cuts made by Sony Corporation (NYSE: SNE) and Microsoft Corporation (NASDAQ: MSFT). With more units in the field, there most likely will be higher demand for Activision Blizzard's awesome pipeline, which includes Call of Duty.