Thoughts on ATVI

Since I went ahead and posted about THQI separately I figured I might as well do the same for the rest of the US publishers.  I mentioned before that I left the video game sector around 5-6 years ago because I felt the party was over for the space at that time.  That was pretty much how it played out.  Most of the larger publishers saw dramatic declines in their stocks and several of the smaller publishers disappeared.  The one publisher who largely bucked the trend was Activision due to their merger with Blizzard.

When I look at ATVI today, I end up coming to the conclusion that the best play on ATVI is not to play.  On the one hand, ATVI looks vulnerable due to its increasing dependence on mega franchises. Consider this:  in roughly the last 8 months ATVI released StarCraft II, WoW Cataclysm, and CoD Black Ops (which has become the best selling video game of all time) and yet ATVI’s stock is below where it was 8 months ago.  Think the law of big numbers has caught up to ATVI?

However there are enough unknowns to prevent ATVI from being an attractive short candidate.  What if Blizzard’s next MMO surpasses even WoW?  What if Bungie delivers on their project?  What if ATVI succeeds in transitioning Call of Duty to a subscription model?

My hunch is that in the long run ATVI is headed lower.  Eventually WoW users will start to decline (it may already be happening) and as time goes by I think fewer people will be willing to pay monthly for MMOs, affecting Blizzard’s next MMO.  I think attempts to charge fees for shooter games such as Call of Duty or Bungie’s game could alienate a portion of the user base if taken too far and that could open a window of opportunity for competitors (Battlefield 3?  Respawn’s game?) to dethrone Call of Duty.  In the end though I just feel there are better investment opportunities than trying to figure out the correct play on ATVI which has pretty much been range bound between $10 and $12 for the last 24 months.

Thoughts on THQI

I was going to wait and do a post covering my thoughts on all the US video game publishers at once, but given the action in THQI today I’ll go ahead with them right now.

THQ is in a difficult spot.  They have decided that the movie/kid licenses aren’t working for them anymore and they want to move more deeply into developing AAA owned IP.  However, as Homefront has shown, that is easier said than done.  The consensus is forming in the industry that mid-tier games are dead.  The market is bifurcating into true AAA titles (either an evergreen franchise such as Pokemon, Mario, Madden, etc, or a new IP from a AAA developer such as Valve, id, Bungie, etc) and the casual end (value titles, social/mobile gaming, etc).  Games in the middle, which aspire to be AAA titles but fall short are seeing dismal sales.  There are exceptions, of course, but on the whole I agree with this assessment.  To compete in a genre such as realistic first person shooters your had better have the complete package – great single player, great multi-player, and cutting edge graphics.  Following Homefront’s progress it was easy to determine that there were plenty of reasons for caution.  The game was a new IP  from a developer without a track record of creating AAA games.   Previews were less than stellar.  Graphics were a notch below the top titles in the genre.  Buzz was not that high leading up to the game’s release.

A 20% haircut in THQI’s stock because of a 72% Metacritic rating for Homefront may seem severe.  However one must remember that THQ has been talking up their transformation for several quarters.  THQ’s CEO has been trumpeting at every earnings release and investor conference THQ’s new focus and how they have a AAA title lined up for release every quarter for the next several quarters.  Heck THQ even changed their logo to reflect their new identity.  For AAA titles there is a pretty good correlation between review scores and sales.  Homefront was the highest profile test of THQ’s new strategy thus far, and the failure to deliver a highly rated game called into question THQ’s ability to execute that strategy.  uDraw sales have already fallen off a cliff.  De Blob 2 didn’t even get out of the starting gate.  Add in mediocre Homefront reviews and you are looking at a recipe for a disappointing quarter.  I can’t say that I am that excited about WWE All Stars, Red Faction Armageddon, or Warhammer 40k Space Marine either.  All those games are practically the definition of mid-tier games which are being squeezed out of the market.

The one upcoming THQ game which I think has the potential to be a break out hit is Saints Row 3.  In fact I had been envisioning a scenario where Homefront and THQ’s other upcoming releases underperformed, creating a buying opportunity prior to Saints Row 3.  So far, that scenario seems to be playing out.  I will be watching THQ closely over the coming months, watching how the stock trades as well as watching how Saints Row 3 is coming along.  This would likely be a short term trade for me, possibly selling into the hype of SR3, as I do not have a lot of confidence in THQ’s releases after SR3.

Mini COOL update

I just listened to COOL’s presentation at the Roth conference.  While the content was identical to what was presented at the Wedbush conference last week, there seemed to be some subtle new positive information.  They mentioned they have a long term license to Zumba and said they will leverage Zumba like they did Cooking Mama (on the Q1 conference call their answer was not clear to the question of how many games they had the license to make).  They also said they have seen very little slowing in Zumba sales.  Overall they sounded very confident.  I doubt they would be so confident if they had any indications of slowing Zumba sales in March.

Some more NPD data.  Zumba sold roughly 300,000 units in February, compared to roughly 320,000 units in January.  Majesco was the only US listed publisher whose sell-through saw year over year growth in February, up 218%.  ATVI was down 5%, ERTS was down 23%, TTWO down 54% and THQI down 7% year over year.

My channel checks indicate that supply of the Wii and 360 SKUs has gotten better in the past few weeks while the PS3 SKU is in very short supply.

A couple site additions

In the sidebar with the watch lists and my positions I added another tab titled ‘Trades’.  Here I will list any short term trades I make.  While most of my positions are longer term holdings, I follow the stocks I am in so closely that I like to take advantage of the swings from time to time with a portion of my holdings.  I figured adding the tab would be better than making the posts section messy with trade updates.

In the ‘Calendar’ tab the events listed are now linked to relevant sites/articles.  So click on ‘COOL at Roth conference’ and it takes you to the page to listen to the webcast.

Comments are now enabled for everyone.  I didn’t realize that the default settings required name and email.

Special Report – 100-baggers

I put up a new report.  It is an analysis I did some time ago on past 100-bagger stocks.  I wanted to look at past 100-baggers to see if I could find common characteristics shared by them which would help me better identify potential multi-bagger opportunities in the future.  To read the analysis head on over to the Reports page.

Btw, the reports are now in PDF format.  That eliminates the problem of the Word documents turning into zip files.

Real quick thoughts on the video game sector

As I mentioned in the About section, video game stocks are my forte.  This site will not be limited to just the stocks of video game publishers, but it is the sector where I have consistently excelled and where I feel I add the most value.  I left the video game sector roughly 5 years ago because I felt that the industry had matured and the ‘law of large numbers’ had caught up to the larger publishers while the smaller publishers faced increasingly bleak prospects due to rising development costs and the increasingly hit driven nature of the business.

I did not know when (or if) I would ever return to the sector, but recent developments have made the sector interesting again.  The growth in mobile and social gaming, motion controls, and digital distribution have leveled the playing field for smaller publishers.  Among the larger publishers, many have come down to levels where they could be considered value stocks.  In the near future I will post my thoughts on the US listed traditional video game publishers (ATVI, ERTS, TTWO, THQI), and later I hope to post some thoughts on some of the foreign listed publishers which trade on the pinksheets.  For right now however this post mostly just serves as an excuse for me to populate the tag cloud with more ticker symbols.

A note on the reports section

You will note that I only have write-ups on Majesco (COOL) in the Reports section currently.  There is a reason for that.  Although I have been blogging about stocks for awhile, it was only a few months ago with the establishment of my position in COOL that I started doing these reports.  Also, I may not do reports on all the stocks that I establish positions in.  For positions which are intended more as swing trades rather than longer term holdings, or stocks which may interest me due to macro factors or as part of a diversification strategy I will do blog posts on instead.  Reports will generally be reserved for high conviction ideas which I believe have potential for significant appreciation.

Majesco (COOL)

I finished my most recent update on COOL today which is available in the Reports section.  That is one reason I wanted to get the new site up this weekend so I could post the update here in a timely fashion.  In the report I review February NPD data, update my channel check spreadsheet, review Q1 earnings, take a closer look at the European Zumba launch, and update my outlook.

In the interest of disclosure I sold around 1/4 of my position in COOL on Friday mostly because I was extremely over-weighted in COOL and it had more than doubled since I established my position roughly two months ago.  For those who are just discovering COOL caution is warranted in establishing new positions.  The stock has had a spectacular few months and could be due for a pullback.  However I still recommend reading all three of my reports on COOL to gain an understanding of the stock’s story.

Welcome to TS Analysis

Welcome to my new site, TS Analysis!

To read my write-ups on stocks head over to the Reports page.

In the second sidebar on the right I have set up tabs with several watch lists.  As I mentioned in the About page my comfort zone is really in the stocks of video game publishers and similar entertainment/consumer companies.  However sometimes I cannot ignore the allure of other sectors, hence some of the other stocks on my watch lists.

Also in the second sidebar there are two tabs for “Long” and “Short” in which I will list all the stocks in which I have positions at any given time.   Lastly, there is a “Calendar” tab in which I list upcoming events for stocks I am following closely.

The site is still pretty bare-bones right now, but I wanted to get it up this weekend.  One thing I plan to add to the site is a forum.  I have been looking over options and think I would like to go with the bbPress plugin.  I am pretty new to setting up a website so it may take me awhile to figure it out.  Also if there are any parts of the website which don’t appear to be working properly for you please let me know.

Turning over Stones