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EA, Activision, Take-Two underperform after GameStop warns

  • Activision (ATVI -1.7%), Electronic Arts (EA +0.3%), and Take-Two (TTWO -1.2%) are underperforming on a strong day for tech stocks after GameStop (GME -19.4%) reported disappointing holiday game sales and issued a Q4 EPS warning.
  • Though GameStop saw its new hardware sales (a low-margin business) double Y/Y thanks to the PS4/Xbox One launches, a bigger-than-expected decline in PS3/Xbox 360 game sales led new software sales (high-margin) to drop 22.5% Y/Y. Pre-owned sales rose 7%, and digital sales 15%.
  • Compared with peers, Electronic Arts is holding up relatively well thanks to a Credit Suisse upgrade to Outperform. EA reports on Jan. 28, and Take-Two on Feb. 3. If history is any guide, Activision should report in early February.
Comments (5)
  • jameskm03
    , contributor
    Comments (100) | Send Message
     
    The trend of digital downloads and digital expansions directly from the publishers is cutting out GME some here too.

     

    I've been a long time GME rewards member but I would never buy the company for the single fact that I feel like they don't try hard enough to keep members active. Meaning I've been on and off again for the last 10 years and it seems like every year without fail my subscription expires without any notification and the next time I go in (sometimes 3-6 months later) we renew but they should have that process on lockdown. You have all my contact information and it's a great value considering the used game discounts AND the magazine but they suck at keeping people locked in.
    14 Jan, 03:27 PM Reply Like
  • SnapperL
    , contributor
    Comments (87) | Send Message
     
    How the hell did EA get an upgrade when they seem to be in serious trouble with so many problems with their games and people now leaving the company. On the contrary you have TTWO that has announced it will be profitable for the foreseeable future, 10 titles in development many of which are for FY 15, p/e of 5, 16 million less stock, and around 1B in cash. With all those positives the analyst are dead on the subject. They can't even change their EPS with the 16 million less shares..
    14 Jan, 03:27 PM Reply Like
  • manfredthree
    , contributor
    Comments (1427) | Send Message
     
    There are several possible (and all likely) contributing causes to TTWO's sp stagnation. We point out we are long the stock because we have expected the Board would be forced to face facts and "Get Help" (in the professional sense). Here's our so far unchallenged take :
    1) The Icahn deal demonstrated an executive and financial suite that shuns all input. Yet it allows short sellers to run rampant over the stock rather than pay a tiny dividend to force many shorts out. This demonstrates they are in fact a bunch of serious amateurs, running on an emotion that says "We need to run this like a club because nobody else understands us ". Well, we not only understand, we have the portfolios and performance to back it up. Icahn was absolutely right. It may take an Icahn #2 to get these folks to wake up and embrace their shareholder base.
    2) Because they are oblivious to their ability to set TTWO apart from the pack as an equity, TTWO is subject to a far greater degree of the sectoral shorting than would otherwise be the case if TTWO distinguished itself as an equity. We wish for one moment they could get a free- for- a- lunch financial brain stem-cell implant from a GE for example. On a comparative basis, TTWO has the cash to really stand tall as an equity rather than use major resources to play emotional defense.
    With no rational balanced approach to growth of the equity base, history says that this type of special situation enterprise will in fact fail to grow., will stagnate, and underachieve what their creative and productive people are quite capable of. The sectoral shorts would then be proven correct. Since we see a lot of very bright folks with major skin in the TTWO game, we see the problem will get attention most likely when the broader markets are less buoyant for the large holders and a bunch of mini-Icahns appear.
    14 Jan, 05:06 PM Reply Like
  • feo.alexander
    , contributor
    Comments (9) | Send Message
     
    Try being an ATVI investor...you see your stock on the edge of a breakout, Zacks comes on board and moves it to an outperform + Stifel and UBS upgrade their PT's to $22 and $23, respectively, and yet the bulls are no where to be found. Then Gamestop comes out with lackluster numbers and Activision tanks as if Gamestop is the only channel they use to sell games.

     

    Gamestop has been on the decline for a while, it is a business that is simply being swallowed up by the larger retailers (Wal-Mart, Amazon). Last time I checked, both of those retailers have sold a substantial portion of COD Ghosts, in addition to the rest of Activision's titles. The company has an amazing pipeline coming out with quite possibly the highest pre-ordered game in history with Destiny (available on PS AND XBOX). The company's management is top of the line (and they are heavily invested in the company ownership wise), the company has amazing free cash flow and it's forward PE is below-average. Why this company is not approaching $19.50-$20.00 is beyond me so if anyone wants to share their thoughts please be my guest!
    14 Jan, 05:26 PM Reply Like
  • Matt-Man
    , contributor
    Comments (516) | Send Message
     
    Gamestop decline is secular. Their main income comes from console games and while new consoles are doing better than expected main driver in game sales is online via App stores.

     

    AAPL Appstore for iOS told breaking 10b sales on 2013, more than 60% of that is game sales.
    Also PC games are moving to be mainly sold online rather than in stores.
    14 Jan, 05:32 PM Reply Like
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