It’s no surprise that the recession has made home entertainment a lot more enticing, and this trend is going to boost the fortunes of businesses that provide reasonably priced forms of home entertainment. The video gaming industry is one case in point.
New statistics show that even adults are joining their kids in playing some of the most popular video games out there. Pew Internet & American Life recently published a survey in which 53% of adults over 18 admitted to playing video games, with one in five saying that they play almost every day.
Games have come a long way in sophistication, as well as sales growth. Today, multiple players can play simultaneously, creating elaborate characters and roles in games that can last for months. And if you think the trend is going away, just ask one of the 300 exhibitors at the recent Game Developers Conference in San Francisco, who expected to see some 18,000 folks.
The continued development of new and ever-more complicated games keeps the industry on a path of tremendous growth. Market research firm NPD reports that in 2008, sales of gaming software and hardware grew to a record $5.3 billion, and the trend continues with the industry showing a 13% increase in January and 5% in February.
And I have just the company to help us take advantage of that growth spurt…
Activision Blizzard (ATVI)
Activision Blizzard (ATVI) is the cream-of-the-crop.
Last year, four of the top 10 best-selling video games in the world belonged to ATVI, including Guitar Hero on Tour, the #1 title in dollars on the Nintendo DS, and its Guitar Hero III: Legends of Rock version was the first video game to ever pass $1 billion in sales from just a single title.
In addition, the company’s legendary World of Warcraft, where gamers battle each other using identities of elves, gnomes and trolls, has 11 million subscribers and generates $1.1 billion in yearly sales.
Right now, the segment of massively multiplayer role-playing games (MMORPG) that Activision services is doing phenomenally well. Its Guitar Hero franchise is pumping out new alliances — such as Metallica, Nirvana, Steely Dan and Motorhead. And Dreamwork’s newest movie, Monsters and Aliens, is a soon-to-be released Activision game that allows players to control the characters as the monsters try to save Earth from the bad guys.
In short, Activision has created a tremendous catalog of games, constantly expanding its game titles — as well as its technology — and the company is now the #1 console, handheld and PC game publisher in the U.S. and Europe. And while the industry is expanding phenomenally, Activision is benefiting the most and handily outpacing its competition, racking up 30%+ annual
Next: Why Now Is the Time to Buy ATVI
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With operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, Japan and South Korea, the company is well-positioned to capitalize on the 85% annual growth projected for the worldwide video game industry for the next few years.
Why Now Is the Time to Buy Activision Blizzard
I expect the company to continue its torrid growth — especially as folks find themselves spending less money on outside entertainment and more time at home in this recession. The company’s financials are impressive:
- Record sales and earnings, consistently beating analysts’ estimates.
- No debt, giving Activision incredible room to grow.
- $3 billion in cash, deep coffers to support long-term game development.
- Insiders on a stock-buying spree, currently staking a claim to about 55% of outstanding shares.
- Low institutional ownership, a condition due for a big change.
Right now is the time to get in on the future earnings potential. A Deutsche Bank analyst issued a recent "sell" recommendation on the whole gaming sector, which has put some pressure on even great companies like Activision.
I completely disagree with the analyst, so I view this as a great opportunity for us. He based his analysis on the aging of some of the most popular games on Nintendo’s Wii and DS gaming systems. Maybe those specific games are aging, but most industry experts believe the industry is on track to almost double itself in the next few years. According to PriceWaterhouseCoopers, revenues are forecast to grow from $8 billion in 2008 to $14 billion in 2012.
Institutions own just 41% of the company’s shares. When the big buyers catch on to ATVI’s potential and rapid growth, that number is bound to increase, bringing even more attention to the company and a boost to its shares. That’s another reason why now is the time to buy, as long as you can get the stock at a smart price.
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