Showdown at E3: Part III -- Who Was Top of the Leaderboard?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With E3 2013 in the books, it’s time to take stock of what the gaming world showed enthusiasts and investors. Considered the most important E3 in a decade thanks to the announced release of the PS4 and Xbox One, the convention delivered the goods and left people in anticipation of the future. Like all industry conventions, it had winners and losers. Some companies got high scores, while others escaped battered and bruised.
Without further ado, here is a summary for investors going forward after three days of spine-tingling technology and leaps in gaming.
Most epic pwning of a rival company: Sony
Call it what you will, but this convention was a comedy of errors for Microsoft. Much of that had to do with Sony's (NYSE: SNE) brilliant press conference on Day 1. In what could only be described as a dispatching of one’s enemies that rivals Game of Thrones, Sony released the PS4 as the console that does everything that a console should do and everything that Microsoft's console doesn't.
Sony not only came out and said the PS4 would be available for $100 less than Microsoft’s Xbox One, but also that it had the ability to play used and shared games without the need for constant Internet connectivity (which Microsoft requires.) It also offers a huge digital library of PS3 titles for those still hesitant to part with their old consoles. Add in the advantage that it has in terms of a better graphics engine and a wide appeal among hardcore gamers, and it’s easy to see how Sony not only won the console war, but also made Microsoft’s crown jewel the butt of every geek joke since the convention began.
Sony was initially criticized for announcing its console before even giving people a chance to look at it, but it was actually a clever “wait-and-see” approach that reaped the maximum benefit and caught the gamer world by storm.
Game-maker most likely to dominate your Christmas wish list: Activision Blizzard
Consoles are nothing without games, and most of E3 is devoted to game developers big and small hawking their big releases. Activision Blizzard (NASDAQ: ATVI) impressed me the most because of the work that it has done to expand its brand with the acquisition of Bungie Entertainment, as well as its ability to take advantage of the new consoles’ advanced graphics with games such as Call of Duty: Ghosts.
This new entry in the Call of Duty franchise takes the idea of cloud gaming and runs with it. By allowing gamers to join other co-op games as a helping hand before continuing on as a single player, it gives players a choice in regard to how much they want to socialize during missions. The game also features more stealth levels and cover-based combat, aided by very detailed landscaping that let the characters and equipment react to nature the way that they would in real-life situations. These add more realism to the game, and with a smarter AI it feels more like being in a combat zone than its predecessors. This makes it a fun game that should be a moneymaker for the company.
Activision also did well by teaming up with Bungie, the creators of Halo, to announce a game called Destiny. This new game takes elements from Halo, like map creation and sci-fi shooting, and mixes them with Call of Duty-like battle scenes and Skylanders type creativity to merge two of Activision’s best offerings. Given Bungie’s reputation, this is sure to go over well with gamers and will also give investors good reasons to invest in Activision Blizzard for the long haul.
Most likely to rake in the coin like Super Mario: GameStop
So maybe GameStop (NYSE: GME) didn’t actually have a massive show presence at E3, but the store franchise was going to come out a winner no matter how the winds blew. When the last generation of consoles came out, GameStop’s stock tripled in value over the next three years, going from $8 per share to almost $23 per share. This is in large part due to it being one of the few store franchises that can effectively compete with online retailers like Amazon and eBay because its employees provide the knowledge and the industry experience that the online-only retailers can’t provide.
Additionally, GameStop will see its used game trade-in service succeed into the next generation thanks to Sony's promotion of easy game-sharing, something that had appeared doubtful with the new consoles. Given the sequels to Call of Duty, EA’s Battlefield, and EA’s Madden series set to be released this fall, customers looking for a price reduction on the $60+ new releases still have the option of trading in used games for store credit, a big part in GameStop’s business. These used games can then be resold, helping those that want to get in to the hot franchises without breaking the bank.
GameStop also offers unique tips and cheats for a lot of major games, such as special armor and weapons, that are only unlocked if a game is purchased through them, which actually provides incentive for gamers serious about upping their Gamerscores by gaining as many advantages as possible. This shows that GameStop knows its audience, and if past history is any guide, the stock will be a great long-term investment, especially with an improving economy helping sales.
The foolish gamer’s bottom line
Each of these three winners scored big with the industry experts. On the investment side, the companies are very cheap considering where these stocks may be heading later this year and into 2014. With an average forward price-to-earnings ratio of around 13 spread across the three companies, it’s a good value for money. Yes, GameStop has a -3.29% profit margin and Sony’s margins are perilously close to 0%, but that’s what creates the potential for huge growth across the video game sector.
A dormant decade may not have been great for these guys, but the next few years are going to make a lot of gamers and investors alike very happy...like 30-kill streak and airstrike riding top-of-the-leaderboard, Skype-taunting happy.
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John McKenna has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and GameStop. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!