Greetings:
I’ll agree that Activision Blizzard is a good buy opportunity. The stock is depressed by the overall market trend right now, while the fundamentals of their business haven’t really changed; since the merger, they’ve cut some dead weight and are well-positioned to use the expertise and contacts Blizzard has developed to play in the Asian markets, particularly China, which puts them ahead of other western publishers by a significant margin. Not to mention that WoW is a license to print money for the next several years. They have a comparable upside growth opportunity to Ubi, but with a much broader portfolio and greater capitalization.
Nintendo is also a safe play, with their platform dominance, but I don’t know that they have as much room for growth. No one on the third-party business has really been able to break out, which limits their ability to turn their platform dominance into licensing revenue, and while their first-party still does great business, they haven’t demonstrated that they can expand out from there. The DS piracy and lack of online support is going to limit their ability to monetize markets like China and India, so while I don’t think they’re going south in the perceivable future, I don’t think they can continue to expand based on hardware adoption as they have in the last couple of years; I could be wrong about that, though.
I think the second tier is Ubi, EA, and Microsoft. Ubi has outperformed by introducing successful new IP on a regular basis, but their reach in terms of audience is still somewhat limited, they haven’t been able to break into the MMO space in a meaningful way, and their markets are still almost exclusively Europe and North America; I’m not sure that they’re capitalized or positioned well enough to continue their current growth trend, particularly if growth in the NA/Europe market slows. EA has a lot of good product, still, and has been hammered by not showing huge growth, but it’s too early to write them off. They’ve been the most successful at turning out yearly release IP, and with BioWare and Rock Band on the books, I think there’s still significant potential there, but the question is whether it will be enough to shake out of their institutional inertia and show real growth. Microsoft, in my opinion, has a clear edge in online console and content distribution, but their challenge is that the games business is so small compared to the rest of their product line that it doesn’t make sense to invest in their stock based solely on their game performance.
Sony is probably in the worst shape for platform-holders, with hardware adoption rates trailing, few notable platform exclusives, the shrinking of their MMO business, and their exposure in the high-end electronics sector. Even if they did okay on third-party cross-platform releases, they’re still going to get hit hard by the tightening economy in TV, blu-ray, and high-end notebook sales. They’re going to need a new, killer product to break out of this slump, and while they may well do that, it’s a very speculative bet, since all other signs point to trouble ahead.
Just a few random thoughts.
Best,
Michael.
