It is no coincidence that the popularity of video games is picking up as the health of television declines. Why sit through commercials and lame plots when you can use that same flat-screen TV to drive through Germany's Nurburgring racetrack, take on the Montreal Canadiens or blow away zombies with a double-barrelled shotgun?
We're not talking about the idle pastimes of pimply kids here. According to The NPD Group, the fastest growth is among consumers who are 35 years of age and older. And what growth: Total sales, including hardware, in the gaming industry in the United States hit $18-billion (U.S.) in 2007, up 43 per cent over 2006, which is hardly allowance money.
This is great news for anyone involved in the video-game industry. It's also good news for investors who want to tap into one of the most amazing entertainment developments since, well, since the television came along.
Sony Corp., Microsoft Corp. and Nintendo Co. Ltd. are the biggest players here, because they have invested billions in their respective consoles, the PlayStation, the Xbox and the Wii. But the companies that develop the games, and the geniuses behind them, are more direct plays on the industry where game sales rose to $9.5-billion in 2007 and shows no signs of slowing down with the economy.
Electronic Arts Inc. and Activision Blizzard Inc. are the two standouts because of their size and impressive repertoire of gunslingers and rockers. Curiously, they're not faring equally well, making them appealing to different types of investors.
For the contrarian, Electronic Arts is the best bet. It's the world's largest video-game maker, but reported a loss of $94-million in its most recent quarter because it has been spending big bucks on game development. The stock has gone nowhere over the past five years, and is down 18 per cent in 2008, which makes it a good turnaround opportunity.
What could improve its fortunes? Electronic Arts is attempting to buy Take-Two Interactive Software Inc., the maker of the controversial but best-selling Grand Theft Auto game, whose latest incarnation generated $500-million in its first week in stores. Uncertainty over the deal, whose deadline has been extended into August, could be exerting a drag on the stock.
However, Activision Blizzard is a better bet for investors who want a game maker that is producing results right now. In its outlook for the coming quarter, the company blew past earnings expectations and sees sales rising 30 per cent. Its shares have risen 20 per cent in 2008 and are up more than 95 per cent over the past year – thanks in large part to the enormous success of its Guitar Hero franchise.
Millions have enjoyed rocking out to Welcome To The Jungle in that game, but rocking out to the stock could prove even more enjoyable.
