You’ll Need to be Prepped for a Blizzard

Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It's been a very good run for the gaming industry in the past decade. Speaking for the present generation, gaming is something that keeps me awake at night, and one of the games I’ve followed for a while, Warcraft and its successors seem to be in a bit of a mess at the moment.

It hasn’t been a very good year for game developers, and Activision Blizzard (NASDAQ: ATVI) has weathered it better than most competitors even though it recently hit a 52 week low. If you look at competitors in the field, Take Two Interactive (NASDAQ: TTWO) seems to have the second best performance while Electronic Arts (NASDAQ: EA) and Konami have lost four times as much value as Activision.

The company recently released Mists of Pandoria, as the next expansion in the World of Warcraft franchise. Yet the stock was flat, even though the company claimed that 2.7 million copies had been sold and the company’s subscriber base increased for the first time ahead of the China launch for the game.

However analysts don’t predict much growth for the leader in the game development sector and see a lot more growth in a company like Zynga (tipped to grow at 57%) while the projected growth rate for Activision is around 6.9%.

Why is that?

Even though Mists of Pandoria was recently released, it isn’t exactly a successor in the WoW series. In fact, it’s merely an expansion pack which I expect the company to have released to stem the flow of subscribers to newer games until its next edition in the series, Titan, is out. Despite the hype and frenzy surrounding a global launch for the expansion Mists of Pandoria, WoW has apparently lost more than a quarter of its subscribers.

Therefore the company has had to look to other means to ensure that historically volatile profits don’t get affected – which they have done to some extent by digitizing distribution and monetizing in-game items. Well logically you’d have say that no matter how much you digitize or monetize, if you aren’t going to sell enough copies, your profits are going to be affected. The gaming trend seems to be moving away from World of Warcraft and into Guild Wars 2 which, according to most reviews seems to be a better game.

Let’s look at the other game that Activision is betting on – the Call of Duty series. Well, the smoke signals aren’t exactly good in this area either because the latest edition in the series Black Ops 2 seems to be struggling to beat pre-order sales of its predecessor – Modern Warfare 3. That doesn’t sound positive at all. Add that to the fact that the company’s first foray into iOS devices haven’t exactly gone too well with the game Skylander the 136th most popular paid app on the iPad and the 142nd most popular app on the iPhone.

Well, if you’re an Activision stock holder, you can at least rest easy knowing that the competition isn’t exactly doing too well. Take Two Interactive Software has its earnings growth in the red for next year, at a negative 67.9%. EA is however expected to grow a little better, probably thanks to all the sports franchises that they seem to own. For example, the FIFA titles assure improved sales almost every year. Earnings of the company are expected to increase 88.82% this year over the last year and expect next year’s earnings to outdo this year’s by 36.81% (source: nasdaq.com).

The gaming sector is now however at a crossroads. How long are people going to keep buying consoles such as the PlayStation or the Xbox. It is only a matter of time before an open source based console is on its way out – according to Kickstarter anyway. Multiplayer Online gaming also seems to be taking a hit at the moment. Are companies going to go mobile or social with their games? Facebook titles seem to gain popularity for a while and then lose momentum. Is gaming ever going to be very conducive on tablets and phones? I suppose it better be, cause it might be the future.


ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard, Electronic Arts, and Take-Two Interactive . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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