Activision Reports Monday: Expect A Halo-3 Type Stock Pop

Blue chip video game publisher Activision Inc. (ATVI) will announce earnings Monday, November 5. Given recent market turbulence, shares are trading lower than they should, given Activision’s complete domination in the publishing space and its recent launch of blockbuster Guitar Hero III.

Like Microsoft’s (MSFT) stock pop following the successful launch of Halo 3, ATVI should experience a similar pop when it announces better-than-expected earnings, awesome initial sales numbers for GHIII, and exciting forecasts for other holiday blockbuster releases.

ATVI shares have also seen resistance as a result of Electronic Arts’ (ERTS) distribution deal for a new music game called Rockband. Near-term concerns about Rockband are overdone for the following reasons:

1) ATVI beat EA to the punch by releasing GHIII much earlier than Rockband (release Nov. 20). I believe most gamers have been impatiently awaiting a new music game, and ATVI has captured such demand.

2) GHIII is more than 50% cheaper than the $199 Rockband. Given that parents already complain about video game prices like businesses complain about rising energy costs, I think Rockband has the wrong price point for mass sales. I think the more expensive game will appeal to music aficionados, while GHIII will maintain its phenomenal mass appeal.

3) GHIII is available on all three game consoles, while Rockband is not available on the most popular console, Nintendo’s (NTDOY.PK) Wii.

Although I think Rockband has potential to compete with GHIII in the long-term, I do not think the new competitor will hurt GHIII sales this holiday. That is why I am recommending the January ’08 call options for a short-term trade, and we will reevaluate ATVI sometime in late January once industry holiday sales are tallied. If you want to buy stocks in this sector, see my previous article about Nintendo.

Disclosure: SmartGuyDH owns ATVI Jan ’08 17.50 calls.

Comments

[realestatebear:]

you were dead wrong!!!

2007 Nov 11 12:26 PM

[Smart Guy S...:]

Care to retract your comment, Realestatebear?

2007 Dec 04 01:39 PM