Activision Blizzard Inc. (NASDAQ: ATVID) reported preliminary Q1 earnings earlier in the week, and from a shareholder's perspective, they were great. These results are for Activision itself, and do not take into account the effect of the merger with Vivendi Games.
OK, consider the following. Management had previously thought that Q1 would see revenues of about $500 million. The game publisher should actually deliver around $650 million on the top line. And in terms of earnings per diluted share, Activision should do at least $0.16. Previously, the call was for $0.04 per diluted share. Activision obliterated its own projections, and one has to wonder when the momentum is going to stop.
I hope it never does, of course, since I own shares of the company. Competitors such as Electronic Arts (NASDAQ: ERTS) and THQ (NASDAQ: THQI) are doing everything they can to keep up. Their stocks certainly aren't near 52-week highs, and in the case of EA, a takeover of Take-Two Interactive (NASDAQ: TTWO) seems to be the biggest priority in terms of counteracting the Activision Blizzard juggernaut. Now, in terms of drivers for the quarter, Activision benefited from Guitar Hero and, believe it or not, a game based on DreamWorks Animation's (NYSE: DWA) Kung Fu Panda. In fact, the Panda title was mentioned first in terms of drivers. This shows that, even though Activision has some awesome intellectual properties of its own, it still knows how to derive value from investments in licensed properties.
Activision closed on its transaction with Vivendi Games Thursday and officially became Activision Blizzard (NASDAQ: ATVID), according to an article at SmartMoney.com. And I am pretty excited at the prospects for the new business (I am a shareholder). It's going to be a tough competitor against Electronic Arts (NASDAQ: ERTS) and Take-Two Interactive (NASDAQ: TTWO). (Of course, the latter two might merge at some point.)
Activision is riding high with its Guitar Hero franchise, and Vivendi Games brings an incredible asset to the table in the form of online gaming sensation World of Warcraft. I can't say I know much about World of Warcraft the game itself, but I know it has a huge following. What else do I need to know, right? For 2009, management at Activision Blizzard expects pro-forma operating income of over $1 billion and perhaps $1.20 or more in terms of earnings per share. That puts the stock, which rose over 5% on Thursday and closed with a price of $31.77 per share, with a P/E ratio a little over 26. That isn't too bad a valuation considering the growth potential. And when the holiday season comes around, I'm sure people will still be buying the publisher's software for gifts, recession or not. Whether it's the Sony (NYSE: SNE) PlayStation 3, the Microsoft (NASDAQ: MSFT) Xbox 360, or the Nintendo (OTC: NTDOY) Wii, gamers will be buying the company's products for these platforms in droves.
The stock has retreated from the highs it reached back in June when I wrote about it, but I am still bullish on the thesis here. Activision Blizzard should do really well, but with the markets in turmoil, you can probably wait for a pullback before buying.
Disclosure: I own Activision Blizzard; positions can change at any time.
The Financial Times reported that Bain Capital, The Blackstone Group LP (NYSE: BX) and General Electric Company's (NYSE: GE) NBC universal will acquire The Weather Channel properties from Landmark Communications for approximately $3.2B in a leveraged buy-out. The Weather Channel will be run separately.
A top Goldman Sachs Group Inc (NYSE: GS) trader is defecting to GLG Partners Inc (NYSE: GLG), the UK's second-largest hedge fund. Goldman's Driss Ben-Brahim, a partner in the firm and the head of its emerging market trading business, will take over GLG's $1.2B emerging markets special situations fund, the Financial Times reported.
OTHER PAPERS:
Take-Two Interactive Software Inc (NASDAQ: TTWO), which makes video games, will probably sign video game creator Ken Levine to a new contract. The deal would bolster Take Two's argument that its value exceeds the $25.74 per share that Electronic Arts Inc (NASDAQ: ERTS) has offered as a takeover price for the company, The New York Post believes.
At least one of my stocks is doing pretty well in this terrible, depressing market environment. Activision (NASDAQ: ATVI) hit a new 52-week high of $36.84 on Tuesday. It closed a little below that, but it was a great, high-volume day for the stock, one that saw the shares rise almost 5%.
Yes, with the Dow Jones index shedding 100 points, with every other stock in my portfolio in the red, including MFA (NYSE: MFA), which closed down to $6.66 -- the number of the beast, my friends -- Activision not only held its own, but it powered higher. Perhaps it's due to the new Guitar Hero game coming out for the DS. Perhaps there's a new wave of excitement over the merger now that investors are receiving their documents (I just got mine the other day, a big book full of wonderful information about the Activision/Vivendi agreement). No matter, though, it was Activision's day, since competitors Electronic Arts (NASDAQ: ERTS) and Take-Two Interactive (NASDAQ: TTWO) were down Tuesday, and THQ (NASDAQ: THQI) closed up only four measly pennies.
I love this price action, and I think it might be predicting a prosperous Q4 holiday season for the company, which will eventually be called Activision Blizzard after the merger. I'm also hoping the action indicates that the stock will be reasonably stable during the summer, which I think is going to be rough on the markets as oil and inflation headlines dominate the tape.
Take-Two Interactive's (NASDAQ: TTWO) Grand Theft Auto IV game stole the number-one position on the software sales chart for May, according to data from market research firm NPD. It sold over 1.3 million copies last month, and it has moved over 4 million since it hit the street. I figured Take-Two would be taking the top slot here, but the big question on my mind pertained to how Nintendo's (OTC: NTDOY) Wii system would do in May. After all, the fad has to wear out at some point, right? At some magical juncture, either Sony's (NYSE: SNE) PlayStation 3 or Microsoft's (NASDAQ: MSFT) Xbox 360 will displace the Wii and become the top-selling system of the month.
Well, that hasn't happened yet. The Wii sold the most, moving 675,000 systems. That was more than three times the amount of consoles sold by PlayStation 3. And as for the Xbox 360, that came in dead last, moving only 187,000 units. All told, total video-game sales, including hardware and games, increased 37% year-over-year. Yep, video games are still hot.
I'm going to predict that the Wii Fit will be the top-selling game package for the month of June. This thing is flying off the shelves in my area, even at $90 (apparently, high fuel costs aren't hurting Nintendo's clientele). Does that mean that Nintendo might make for a good short-term trade? Maybe, but I'd prefer buying it safely below $60 per share. As of this writing, it's trading well above $60 per share. I continue to hold Activision (NASDAQ: ATVI) as my play on video games, and will be keeping Electronic Arts (NASDAQ: ERTS) in the back of my mind as August approaches, since that will be when the new Madden game arrives in stores. Not sure if that's worthy of a trade yet.
Disclosure: I own Activision; positions can change at any time.
Was it any surprise that Take-Two Interactive Software, Inc. (NASDAQ: TTWO) beat expectations for the second quarter? Not a chance. That's because Grand Theft Auto IV stole a lot of hardcore-gamer hearts when it made its eagerly anticipated debut back in April. Net revenues more than doubled to nearly $540 million in Q2, and adjusted net income came in at $1.52 per share. Briefing.com says that the bottom-line results were $0.39 ahead of analyst expectations. Again, we saw this coming.
Take-Two opened Grand Theft Auto IV on the Sony Corporation (NYSE: SNE) PlayStation 3 and Microsoft Corporation (NASDAQ: MSFT) Xbox 360 platforms with excellent fanfare and brilliant marketing, taking full advantage of the brand equity intrinsic to the title. An impressive 8.5 million discs of the title have been sold so far. Job well done. Plus, BioShock is coming to PlayStation 3 later this year. That's going to be a major franchise in the years to come.
Yet, I will not buy the stock. With the arbitrage battle surrounding Take-Two and its takeover dance with Electronic Arts (NASDAQ: ERTS), I simply am discouraged from stepping in and adding the company to my portfolio. I owned Take-Two at one time, but I'm not interested in getting back in. Besides, the news is out on Grand Theft Auto, so who knows if this would have been much of a trade right now, even if the EA deal wasn't on the table. Great quarter, excellent future guidance, but I just don't see the value of playing the buyout-game here.
Disclosure: I don't own any of these companies, but positions can change at any time.
Stock futures were mixed early Friday morning with the Nasdaq futures higher, given a boost by a new deal being discussed between Microsoft and Yahoo! Blue chip stock futures were lower after a new forecast the economy will weaken further and unemployment will rise.
U.S. stocks ended Friday little changed after consumer confidence data disappointed Wall Street again and high oil prices dampened the mood. For the week, though all the major indexes posted gains. The Dow industrials rose 1.9% for the week despite being down 0.05% Friday, the S&P 500 rose 2.7% for the week, helped by a 0.13% rise Friday, and the Nasdaq Composite climbed 3.4%, including a 0.19% decline Friday.
At 10:00 a.m. EDT, April leading indicators, a lagging broad, general, indicator of economic activity, is expected to show minimal increase. However, a survey was released Monday by the National Association for Business Economics giving their collective outlook on the U.S. economy. While, according to the survey economists believe the worst of the housing slump and the credit crunch might come to an end this year, a majority of economists now believe the economy is in a recession or on the brink of a recession and therefore they forecast further weakening of the economy and unemployment to continue to rise.
Take-Two Interactive (NASDAQ: TTWO) has launched its important new "Grand Theft Auto IV" franchise and it has done remarkably well. It did not cause a big bump in the firm's stock, which has only moved from $26.62 three weeks ago to $27.10.
The company's one suitor, Electronic Arts (NASDAQ: ERTS), had already taken the shares up from from under $18 with its buyout offer. Most analysts believe that the offer will be extended because Take-Two has resisted a buyout.
According toThe Wall Street Journal, there is a "belief among Take-Two management and some of the company's shareholders that the company deserves a higher offer from EA. "
No matter what Take-Two believes, EA's best move now is probably not to extend the offer but, instead, to walk away. The Take-Two share price would be very likely to move back below $20, which would pressure the company's board to do something to move the share price back up again.
EA's shareholders are ill-served if the company extends its offer. Without a buyer, Take-Two might have to come to the negotiating table and Electronic Arts could get a better deal.
Electronic Arts (NASDAQ: ERTS) issued Q4 and full-year numbers on Tuesday. The competitor of Activision (NASDAQ: ATVI), THQ (NASDAQ: THQI) and Take-Two Interactive (NASDAQ: TTWO) reported adjusted fourth-quarter revenues of $919 million, which was good for a 50% increase. Earnings per diluted share were $0.09 on an adjusted basis, also representing a 50% jump. For the full year, adjusted revenues jumped 30% to $4 billion and earnings per diluted share rose 36% to $1.06. Not too bad.
EA, according to Briefing.com, also beat Wall Street's expectations by quite a bit. EA was forecast to only break-even on a non-GAAP basis, so the difference was a nice $0.09. In terms of operational cash flow, EA increased the metric by 33% during the fourth quarter, but for the full year, operational cash flow decreased 15%. Ah, such is life, I guess. Nevertheless, EA produced 27 titles that sold over a million units this year -- three more than in the previous year. Fifteen of its titles sold over 2 million units -- five more than the last fiscal period. Titles such as Army of Two and Rock Band, as well as various sports franchises, drove the results.
Things sound pretty good, don't they? EA is definitely a major force on the Sony (NYSE: SNE) PlayStation, Microsoft (NASDAQ: MSFT) Xbox 360 and Nintendo (OTC: NTDOY) Wii platforms. But EA has had some challenges during this console cycle, and there is the perception that it needs a major merger to combat the threat posed by the Activision and Vivendi Games transaction. And let's not forget that Activision is on fire all on its own. That's what the whole attempted takeover of Take-Two is all about.
Macy's (NYSE: M), which was forecast to report a loss of a penny a share in the first quarter, said the difficult retail environment hurt sales and it incurred costs from a restructuring. The loss came to $59 million, or 14 cents a share, compared with a profit of $36 million, or 8 cents a share, a year earlier. (As the numbers are quite fresh, it's possible they include one-time item not yet sorted out and not comparable to analyst expectations.)
John Deere (NYSE: DE) said its second-quarter profit rose 22%. Deere experienced increased demand for its farm equipment, as crop prices kept rising, posting an 18% increase in sales. Profit for the quarter jumped to $763.5 million, or $1.74 per share, a penny below analyst estimates. From premarket early action, it seems shares of DE might start much lower.
Freddie Mac (NYSE: FRE) also reported this morning, saying its first quarter loss widened to $151 million as the U.S. housing market worsened. Somehow, though, the results were not as poor as expected and FRE's loss of 66 cents a share beat estimates of a 92 cents a share loss. FRE's shares are up over 6% in premarket trading.
Still on earnings, last night Whole Foods (NASDAQ: WFMI) and Electronic Arts (NASDAQ: ERTS) reported results. Shares of WFMI are plunging nearly 9% in premarket trading as the organic grocery chain reported a worse-than-forecast 13% profit fall.
Electronic Arts (NASDAQ: ERTS) shares are also declining over 2.8% in premarket trading after the suitor of Take-Two Interactive (NASDAQ: TTWO) reported a widening quarterly loss and a disappointing outlook.
ERTS is scheduled to report Q1 EPS after the market close today.
ERTS unsolicited $2 billion buyout offer for Take Two (NASDAQ: TTWO) expires on May 16.
ERTS May 55 straddle is priced at $3.55. ERTS June option implied volatility of 36 is near its 26-week average according to Track Data, suggesting non-directional price fluctuations after EPS & TTWO offer expiration.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Take-Two Interactive (NASDAQ: TTWO) needs to demonstrate the strength of its franchises other than Grand Theft Auto in order to fend off a bid from Electronic Arts (NASDAQ: ERTS), and this latest bit of news could help it do just that.
In a press release issued on Friday, the company announced that its 2K Games unit had "reached an agreement for BioShock, the universally acclaimed smash-hit video game, to be developed as a feature film by Universal Pictures." Gore Verbinski, director of the Pirates of the Caribbean trilogy, will produce and direct the film.
In a clear -- and completely justified -- swipe at critics who characterize the company as a one-trick pony, chairman Strauss Zelnick said that " Our ability to attract a major studio and unparalleled creative team speaks volumes about the strength of our BioShock franchise. It also demonstrates how Take-Two is delivering value based on our strategy of creating and owning our industry's most powerful intellectual property. "
This development certainly plays into Take-Two's argument that it can build value as a stand-alone company. As far as I can tell, none of EA's games have been transformed into Hollywood movies.
That said, Bioshock the movie sounds like a surefire flop to me.
Morgan Stanley (NYSE: MS) raised $4 billion for a fund that invests in infrastructure projects, far exceeding the $2.5 billion target it has set. Other than ports, roads and parking lots, governments are spending more and more on infrastructure, especially water, electricity and telecommunications, and funds for such undertakings are greatly required.
Research In Motion (NASDAQ: RIMM) today introduced the BlackBerry Bold smartphone. While it was hailed an iPhone killer by some, the company continues to position the BlackBerry as a smartphone for business and heavy users, rather than try to cut into Apple's consumer market. According to RIM's statement, "the BlackBerry Bold is designed to give business professionals and power users unprecedented functionality and performance in an intuitive BlackBerry smartphone. It is the first BlackBerry smartphone to support tri-band HSDPA high-speed networks around the world and comes with integrated GPS and Wi-Fi, as well as a rich set of multimedia capabilities." If you wondered, the QWERTY keyboard is still there, but its most amazing feature is apparently the display. While RIMM is up 1.6% in premarket trading, some think it's in for a bruising.
And meanwhile, of course, Apple Inc. (NASDAQ: AAPL) is continuing its push to bring the iPhone worldwide. Singapore Telecommunications Ltd said it and its mobile associates -- Bharti Airtel Ltd, Globe Telecom Inc and Australian unit Optus -- will bring the iPhone to Singapore, India, Australia and the Philippines later this year as they had signed the agreement with Apple. As for the 3G iPhone, it may launch when Steve Jobs gives his keynote address on June 9, the first day of the 2008 World Wide Developers conference. While no announcement was made, Fortune has confirmed the date of the keynote with Apple public relations.
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Stock futures were mixed early Friday morning with the Nasdaq futures higher, given a boost by a new deal being discussed between Microsoft and Yahoo! Blue chip stock futures were lower after a new forecast the economy will weaken further and unemployment will rise.
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