No matter how you slice it, whether you look at GAAP or non-GAAP statistics, Activision, Inc. (NASDAQ: ATVI) kicked it during the quarter. And I mean really kicked it.
Net sales for Q4 set off at warp factor 11, rising 93% to $602.5 million. Earnings per diluted share on a reported basis came in at $0.14, reversing a year-ago loss of $0.05 per share. For the full fiscal year, Activision grew revenues by 92% -- again, sales growth in the 90's! -- to $2.9 billion. Earnings per diluted share were $1.10 in 2008 versus a measly $0.28 in 2007. Take that, Electronic Arts Inc. (NASDAQ: ERTS) and THQ Inc. (NASDAQ: THQI)! Activision is truly taking advantage of consoles from Microsoft Corporation (NASDAQ: MSFT), Sony Corporation (NYSE: SNE), and Nintendo Co. Ltd. (OTC: NTDOY). Titles such as Call of Duty 4, Guitar Hero, and Transformers drove the results -- like I always say, it's always about the quality of the slate. On an adjusted basis, earnings beat expectations by a whopping $0.12, according to Briefing.com.
I bet EA is really wishing its deal went through for Take-Two Interactive Software, Inc. (NASDAQ: TTWO) right about now! I believe Activision will continue to do well the rest of the year, and I love its fundamentals, but what about the stock? As of this writing, it's up about 3%. If you are looking to trade Activision, I'd probably wait until all the earnings excitement is over and be patient for pullbacks as the market may perceive that everything is priced in at the moment now that the news is out.
Disclosure: I own shares in Activision; positions can change at any time.
In a column in Barron's (subscription required), analyst Todd Greenwald provides a bullish outlook for the video game industry, macroeconomic trends be damned:
We believe that this industry is virtually recession-proof and will be driven almost entirely by the release of new games, and continued hardware sales, rather than any macro-level consumer spending trends.
Last year's momentum has continued into the first half of 2008; year-to-date software sales are up 41% in the U.S., following 34% growth last year. Furthermore, this will likely accelerate in the coming months, driven by the releases of Grand Theft Auto IV, Nintendo's Mario Kart Wii and Wii Fit, and Konami's Metal Gear Solid 4.
I tend to agree with the notion that video games should be pretty recession-resistant -- they just aren't that expensive for the amount of time that so many young, male hardcore gamers spend with them. There's an argument to be made that a $50 video game actually provides a positive return on investment to the consumer because a night at home playing PlayStation in your underwear is cheaper than a night out on the town.
But one word of caution: Much of the growth, especially in more casual games like the Nintendo Wii, is being driven by a growing number of non-hardcore gamers. People who don't consider video games their main hobby may be more likely to give them up if things get tight.
Another problem to keep in mind: the Associated Press recently reported that teens are having a tough time procuring summer work in light of the struggling economy. That means less spending money for video games. But teen-oriented fashion retailers are more likely to be the victims of that.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
The Nintendo Ltd. (OTC: NTDOY) Wii and Sony Corp. (NYSE: SNE) PlayStation 3 were released within two weeks of each other, in November of 2006, as the latter two of the three "seventh generation" home video-game consoles, with the Microsoft Corp. (NASDAQ: MSFT) Xbox 360, released a year earlier, being the third. Now, a year and a half later, let's review how the two gaming machines stand up to each other.
Out of the gate, the Wii was a hit. It broke sales records, led by its revolutionary controller and Wii Sports, a silly mini-game compilation that came packaged with the console. The focus of the system was more on its unique game play, which Nintendo hoped would draw casual gamers, than its intense graphics abilities. The gamble paid off, as the Wii surpassed the Xbox 360, which was released earlier, as the top-selling console in September 2007.
The PlayStation 3 had no such luck at the start. The console's strategy, like the Xbox 360's, revolved around graphics, which made the system more expensive -- $499 for the basic PS3 at launch was double the Wii's $249 launch price. Sony also decided to intertwine the fate of the console with that of the next generation DVD technology the company backed, the Blu-ray disc. However, the release of the PS3 slightly predated the high-definition craze, and so having a Blu-ray player was not an important enough selling point to help the console at launch. Another issue for the PS3 at launch was the lack of a cornerstone franchise for the system. Xbox had Halo, and Nintendo, with its deep video-game roots, had Zelda, Mario, and Metroid. Without a "must buy" game or franchise, Sony was left out, and its PlayStations stayed on the shelves.
Mother's Day has finally gotten out of hand and may now be more commercial than Christmas. Wal-Mart (NYSE: WMT) has decided to promote the Nintendo Wii Fit as a better thing to give mom than flowers. It is certainly more expensive.
According toReuters, "the Walmart.com homepage will be dominated by the Wii Fit -- a physical exercise program that uses a pressure-sensing board as a controller -- including a link to order the product now, ahead of its May 19 U.S. launch."
The world's largest retailer hopes the promotion will bring store and online traffic during a tough economic period. Even with a recession here or coming, video games are still selling well.
The question is, even with a good market for game consoles, is this something that mom wants on her big day? Flowers and clothing may have done well over the years because women actually like them.
But sonny boy can go online and get that Wii Fit for himself and call the florist at the last minute. It is Mother's Day.
The theory makes sense. As the economy softens, Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT), and Nintendo will cut the prices of their game consoles to keep sales volumes up. The CEO of game publisher Activision (NASDAQ: ATVI) has stated as much.
According toReuters, "With the rising costs of fuel and food and housing, it is more difficult to go out and buy a $399 console, and I think it's going to put pressure on the console manufacturers to reduce their prices," Bobby Kotick said.
The problem presents a delicate balance for the console makers. Nintendo's stock has soared because of the popularity of the Wii. Microsoft just began to make money in its device division in the first quarter of the year. After a number of quarters of losses, it looks like the PS3 may start to contribute to the Sony P&L.
Holding prices may keep margins high, but drop unit sales.
There are two factors that work in favor of the console producers. The first is that, as their manufacturing volume has gone up, component prices have come down. That means if retail prices are lowered, the companies can still make money.
The other factor is that all three companies get licensing fees from each video game that is sold to run on its platform. With new offerings like Grand Theft Auto IV on the market, those fees should soften the blow of lowering hardware prices.
Watch for the price of game consoles to be dropped -- and soon.
I'd like to own Nintendo (OTC: NTDOY), but there are a couple things that bother me about the current chapter of its amazing story. First, let me take a look at a report about the video-game juggernaut's earnings.
According to The New York Times, Nintendo's profit number was one for the record books. Sales soared to the sky, rocketing 73% to over $16 billion. Net profit also went ballistic -- in a good way -- by about 48%, coming in at $2.5 billion. Yeah, the Wii console was a big driver, but don't forget that little handheld wonder called the Nintendo DS -- people sometimes miss that part of the tale, and they shouldn't. The DS sold over 30 million units on a global basis during the fiscal year, while the Wii sold over 18 million units. Yep, Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) still have something to worry about, as the Wii has taken the shine away from the PlayStation 3 and the Xbox 360. The company's position in the current gaming cycle is strong, no question. And publishers like Activision (NASDAQ: ATVI) and Electronic Arts (NASDAQ: ERTS) all strive to be big supporters of Nintendo's systems.
Here are the problems, though, that I alluded to at the opening. First, as of this writing, the ADR's are, according to AOL Finance, priced at $71.14 (the ADR's don't change during the day on this quote system, as they update after the close; I'm seeing a current bid on my brokerage's quote system of $68.50, so the shares might possibly go lower tonight). This represents something of a recent run-up, so I'm not interested in chasing the stock at these levels (last time I was interested in Nintendo, there was a price drop). But, there could be a more pressing issue -- on an anecdotal level, in my area, the Wii's are currently plentiful. Has the system peaked? Hey, don't go by my anecdotal observations, but I'm just saying that, for me personally, buying Nintendo at this time is something I'd have to consider very, very carefully.
Disclosure: I own shares of Activision; positions can change at any time.
Sony (NYSE: SNE) is building a virtual community for video-game players who buy its PS3 video-game console. It has been delayed again, which may say something about why the Microsoft (NASDAQ: MSFT) Xbox 360 and Nintendo Wii tend to thrash it in the sales department.
According toThe Wall Street Journal, "The service will let users create avatar characters, decorate homes and interact with other users in a virtual world." It was supposed to come out in 2007, and now it may be out late this year. Microsoft has had an interactive aspect to the Xbox for more than two years. It allows game-players to compete against each other over broadband connections. The Microsoft product also facilitates online chat and downloads of video games and movies.
Sony (NYSE: SNE) is still in the game, and it wants competitors Microsoft (NASDAQ: MSFT) and Nintendo (OTC BB: NTDOY) to know about it. The latest move by the company might not be extraordinary or anything like that, but it nevertheless shows a console maker that believes its product is worth something to living rooms across America (and the world, for that matter).
According to the following article from The Wall Street Journal(subscription required), Sony is injecting some new bells and whistles into the PlayStation 3 unit. Via a system update called Blu-ray Disc Profile 2.0, Sony users will be able to do neat things like transfer images and song playlists to the company's handheld PSP system, invoke a resume-play feature for Blu-ray films even once the disc has been taken out of the system, and download streamed content. Yep, these are neat things, all right -- but will they make people suddenly say to themselves, "Oh man, I have to get a PlayStation 3 over a Nintendo Wii or a Microsoft Xbox 360 for sure now!!!"
Well, it's hard to say that someone would say that exactly, but Sony is doing the correct thing here by adding functionality. And there are some who will indeed care about this stuff, and enjoy it. So it's important to have two minds about this as shareholders -- it isn't mindblowing news, but it shows that Sony is out there promoting. Anything helps. Plus, I like how Sony is yet again highlighting the Blu-ray capability -- that is a big distinction between its unit and the Xbox 360/Wii platforms. Blu-ray, as we all know by now, is the winner of the new format war, and Sony should gloat about that fact at every conceivable juncture.
So, again, I'm not saying this particular update will by itself turn the tide or anything -- price cuts would be more effective -- but I think it will help the brand equity of the PlayStation 3. As for me, I'm not running out to buy Sony -- I'm still happy playing the video-game revolution via my Activision (Nasdaq: ATVI) shares.
Disclosure: I own shares of Activision; positions can change at any time.
Activision (NASDAQ: ATVI) can rock its shareholders just as hard as a blood-spitting Gene Simmons at a Kiss concert. And we all know why -- the Guitar Hero franchise is, simply put, one of the most popular videogames out there, and it is available for all the major console systems from Sony (NYSE: SNE), Microsoft (NYSE: MSFT) and Nintendo (OTC: NTDOY). It's also a pain in the neck for other publishers such as Electronic Arts (NASDAQ: ERTS), Take-Two (NASDAQ: TTWO) and THQ (NASDAQ: THQI), since they have to put up with the franchise's dominating power. But guess what, the inevitable has come to pass -- Activision is being accused of patent infringement!
Yes, you can't be very popular, you can't rake in millions and millions of dollars in profit for shareholders and expect to get away unscathed. Gibson Guitar, according to this Associated Press piece, believes Guitar Hero infringes on a patent it holds for a rock-concert simulator. The patent apparently goes back to 1999 and it contains a description for a system that uses a 3-D headset in conjunction with a musical playback. Activision decided to file a suit to get a court decision declaring that it is not infringing on any existing patent.
Imagine if the Sony (NYSE:SNE) PS3 actually came out of the shadow of the Nintendo Wii and Microsoft (NASDAQ:MSFT) Xbox 360. During 2007, PS3 ran in third place in sales in most regions and most months. The machine was viewed as too expensive and did not have enough new games to run on it.
There is a case to be made that some of this could change. Production scale is moving up on the machine. That means lower component costs and another chance to cut prices. According toReuters, "2008 will be a turning year for the PS3," said iSuppli analyst Pamela Tufegdzic. "Sony is offering a better forthcoming software pipeline with blockbuster titles like 'Gran Turismo 5,' which will boost PS3 sales this year."
Not so fast. Nintendo and Microsoft are not going to stand by and let their sales be stolen. Nintendo has already introduced a radical new platform called Nintendo Fit. It allows users to stand on a balance board and be physically involved in games that include things such as downhill skiing. Microsoft has its own arsenal lead by Halo 3.
Sony's PS3 may be in for slightly better times, but it is far behind in a race that it may never win.
Douglas A. McIntyre is an editor at 247wallst.com.
Whoever invented the Wii Fit, a virtual gym that can be used in conjunction with the gaming console, deserves a medal. Heck, he or she deserves a raise because it's going to be a huge seller for Nintendo Co. (OTC: NTDOY).
This game is perfect for someone like me who doesn't exercise as much as he should, which in my case means hardly ever. The Wii Fit, which will be available May 19, also will be useful for parents trying to get their children to exercise more. "Wii Fit is all about breaking the definition of video-gaming, about something that keeps you and your family fit and engaged," said Reggie Fils-Aime, president of Nintendo's U.S. division, in an interview with The Wall Street Journal.
I used to own some of the Nintendo (OTC: NTDOY) ADRs that trade over-the-counter. I bought them last summer ahead of the holiday season at around $62 a share and sold the position last month for about $67 a share, intent on raising some cash in one of my accounts for better buying opportunities. I should have sold when the shares hit their 52-week high of approximately $78, but I didn't -- kills me, but I've moved on (I think).
But with the recent sharp drop in the shares, should investors be taking a look at Nintendo? I know I've been keeping an eye on the price action. Nintendo is definitely a major player this time around in the console cycle; Sony (NYSE: SNE) used to be king of the gamers, but now the sales/cultural buzz is definitely in the Mario-maker's court. Not only is the Wii a major catalyst, but you have to respect the incredible popularity of the DS handheld system.
My gut is telling me that Nintendo hasn't yet bottomed out. Identifying a bottom is a fool's game, of course, but I'd like to see Nintendo develop a more stable base before I buy in again. For now, I own Activision (NASDAQ: ATVI) and Take-Two (NASDAQ: TTWO) as plays on the videogame growth story, but I am interested yet again in Nintendo.
Disclosure: Steven Mallas owns Activision and Take-Two, and is mulling a purchase in Nintendo.
"Taiwan - the so-called 'other China' - is an overlooked gem," says Martin Hutchinson, contributing editor to the top-notch Money Morning.
"With a per capita income of nearly $30,000, and a productivity growth rate of 4% -- more than double the rates enjoyed by Europe and the United States -- Taiwan is one of the world's best bargains." Here, the advisor looks at ways to invest in Taiwan.
"There's no question that the Taiwanese economy is highly dependent on China. Indeed, fully 38% of Taiwan's exports go to China - including Hong Kong - while 16% of Taiwan's imports originate on the mainland."
"Taiwan's inflation rate is a paltry 3%, government spending accounts for a mere 21% of the country's economic activity and the country runs a hefty balance-of-payments surplus. Unlike China, there are no signs of major problems in Taiwan's banking system.
"Thus, even though Taiwan's growth rate is lower than China's 'official' growth rate, the greater stability of Taiwan's economy ought to make the shares of Taiwan-based companies trade at a premium to those based in China. But that's not the case. Instead, Taipei trades at less than half the earnings multiple of Shanghai.
This post is part of our 
Mother's Day has finally gotten out of hand and may now be more commercial than Christmas. 
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Whoever invented the Wii Fit, a virtual gym that can be used in conjunction with the gaming console, deserves a medal. Heck, he or she deserves a raise because it's going to be a huge seller for 
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