Are stockbrokers clueless here?

My twitter account tweeted a tweet only minutes ago that gave me pause to take a look. It is an article from Gamespot (at http://www.gamespot.com/articles/activision-stock-joins-ea-in-hitting-all-time-high/1100-6428993/), which is actually 2 days old. The title ‘Activision Stock Joins EA in Hitting All-Time High‘ was reason for the first giggle, then I decided to take a deeper look at the quotes. The result?

Well, judge for yourself!

First off we get “The video game publishing giant’s share price reached an all-time high recently of just above $26 a share–and some experts are optimistic about the company’s potential to grow even further“, which is funny in its own right, where ‘some experts‘ is a link to www.zacks.com. Now, as I see it, the fact that they rely on how Activision/Blizzard is such a success as they state it “Call of Duty, Warcraft, Diablo, and Guitar Hero franchises“, which gets an added “Along with its Zacks Rank #2 (Buy) and an expected EPS Growth Rate of 7.47%, there are three important factors to know when considering investing in Activision Blizzard” the site goes on mentioning a few titbits, which are all true, yet the foundation of the issue is one they skated around, why? It can be that they have no real sight on video games, or because they have other reasons. I have no idea what the other reasons are, yet in my view, their first tactical error is: “For the quarter ended March 31, 2015, Activision Blizzard’s GAAP net revenues were $1.28 billion, as compared with $1.11 billion for the first quarter of 2014” the second one is “Activision Blizzard’s earnings per share in 2014 was $1.42, again representing an all-time high of over 50% growth year to year“.

Before I start explaining this, let’s go back to the original article for a moment.

The next quote is “Activision has a number of projects currently in the development that investors may be looking forward to. These include Destiny’s Taken King expansion (September), Skylanders: Superchargers (September), and Call of Duty: Black Ops III (November)“. It is important to see what is up and coming, as such we see a field of particular possibilities, which gets the final added quote “the company will report earnings for its latest financial quarter on August 4th“.

So why is all this an issue?

First off, this is about stock joining EA, whilst the article is deadly numb on anything Electronic Arts in this field, which is odd to say the least.

Now for my other part, you see, investing in game stock is often massively risky, the part that these research companies fail to realise is that the value of these places are directly depending on the next upcoming failure! That has forever been the case with gaming companies, you see there is a reason why Ubisoft PC sales were down 90% in 2011 and I can tell you for certain that software piracy was NOT the cause of that!

So why did I find this all hilarious? In the end whatever a person wants to sink their money in, it is all fine by me. Now for the backdrop in all this, because so far, my reasoning could be regarded as an emotional one, which is really bad when it comes to shares.

No one will deny that Blizzard is a place of success, I am still addicted to Diablo 3 (as I was to versions one and two), yet Blizzard is still getting over the loss of Titan, a success that would never come to truth, which in the scheme of things is not the deadliest issue, especially as World of Warcraft is still grossing a billion a year, so Blizzard has many moments of success. However, stability is not a sexy thing in the market and Blizzard requires growth to pull this off, even though there are clear and reliable rumours of another DLC for Diablo 3, which would be, if we go by reaper of souls an essential and absolute must for any Diablo fan, it would not be enough for Blizzard to propel forward to the degree it needs to (personal view), in the end Blizzard is a fine company, with a solid income, yet as I see it, the massive sales drive needed (growth of customer base) is not one that Blizzard has, it has a faithful and loyal customer base (I am one of them), yet in my case, it is set to a game I have had for well over a year with no new spending in that time.

Now let’s take a look at Activision, first the good stuff, there is no denying that Skylanders was a brilliant idea, not particularly for me, but it is making kids spend, and spend and spend (or at least their parents), these figurines are not cheap. A well thought through business model. Destiny is another matter, this game is an MMO and a FPS, which is nothing short of a hybrid game and even though I am not a fan, the game looks good on the systems, but like all games of this nature, it has a problem and a handicap. This is nothing personal, you see, whatever good it is, it is money that has been spent. In one way Destiny is a huge success, the cost to make it was half a billion, yet this game made over 1 billion, so that is definitely a win. Now Destiny joins the ranks of requiring DLC moments, and here is the first hiccup. The drive and ‘choices’ in ‘The Taken King‘ expansion, has been all over the net and the day one gamers are not happy! The new full version with DLC will come with items available only in the Collector’s Edition mean that players only chance to get those items requires them to re-purchase a game and DLC they already own, which is not a good moment, so the new players will get rare weapons and items that seasoned players will not be able to get their hands on, the playing field will now be slightly uneven, it also makes for a game where players have a case of the ‘envy’ which also does no good, you see envy bites in a gamer, until he is too pissed off to play, which is deadly to Bungie to say the least. In addition, like with blizzard, revenue will come in, yet not in the large masses it did come in, so these players need to also rely on new IP and new games to grow its customer base. In addition, when we see a review like ‘Final verdict on most expensive video game ever made is a disappointing lack of ambition’, which we can question as it is only a single view, but MMO’s have fans and loathers, there is no in-between here. I am to some extent a loather, in this my reasoning is that these games at some point get hacked and the people go in overcharged destroying a perfectly good game, in addition, you need a decent player base with gamers that play like gamers, I do not mean their skill levels, but I mean that a certain level of courtesy is expected of your fellow fight mates, that at times is just not happening, souring the experience. It is also important that these bad moments are often just moments, not constant occurring events, in addition, many MMO games are often too unforgiving to new players, in some cases players who are experiencing their first 10 minutes in a game like Destiny, I have found in the past that MMO games do not once, not ever correctly tailor to those players, which puts them off. Someone gave this as a con to Destiny “Repetitive enemies, non-existent set pieces, and terrible bosses. No new ideas and overly simplistic role-playing and customisation elements“, I do not disagree here (from what I have played) but there is one side that is not part of that ‘con’ A game that tailors to thousands of players needs a stable setting, which cannot survive on terrible bosses and simplicity, what cannot (and as far as I can state) has not ever been confirmed is how the game plays after a while, you see, these games need to rely that a person once he/she pushes past level 13 is still eager to play, repetition is a killer here, not at level 4, 5 or 6. That will impact longevity, a side the stockbrokers do not seem to understand as that part of the game will not fit into a spreadsheet.

Now we get to the EA side of things, yes, there is no denying that their list is good. First we get the sports games (NHL, FIFA, NBA and NFL) and there will be Star Wars Battlefront. Now the bad part, so far EA Sports will always need patches and if the previous games are anything to go by it will not be that bad. In addition, sports games have a loyal following so unless their QA department screws up, we have 4 seemingly decent going games, however Star Wars Battlefront (SWB) is another matter, no matter how it looks now, there will be issues all over the board when the population at large goes into it, it is a mere statement of fact. An open system with so many fans will optionally truly drain the internet, so as EA overcomes the first issues, it will be an important setting, because Destiny and other MMO’s (real Elder Scrolls) have made many gamers a little hesitant to go day one (except for the limited edition fans), so that first hiccup will determine how wave two will react and that will result in slacking sales, in addition, upcoming Q1 2016 games will possibly see delays and the true kicker (Mass Effect Andromeda) is not out until the end of 2016, that is if there are no development hiccups. So in all this we have a stable setting from both, yet in my view, stability does not give rise to exploding share prices and the fact that EA doubled in a year might sound nice, but that was the result of new Nextgen consoles with a population making a mandatory purchase as there were almost no choices in games, now a year later that market shifted and the true anticipated upcoming games only have SWB on its list, the rest of the desired Nextgen games are all indie developers with none of them linked to either Electronic Arts or Blizzard/Activision.

In addition, the latest ‘remaster’ joke comes from Activision, The Prototype bundle, which I was initially looking forward to is now already regarded as the worst remastering ever. A frame rate that seems to go no higher than 30, blurry graphics at times, what was original is now a game not to take seriously (either of the two games). So Activision end up with two titles on Nextgen that look worse than it did on the original consoles, who is that for a non-achievement, that failing will also impact the non-revenue side. Kotaku shows it best at (http://kotaku.com/the-prototype-bundle-for-ps4-and-xbox-one-is-pretty-sho-1718779050), especially when the Xbox 360 has a framerate of 26, whilst the Xbox One has a framerate of 24. The average gamer can immediately see the flaw here, so why release a game that below acceptable default? It also implies that when a software house goes to this length to hope for revenue, we see a side that many gamers fear, the remake of a decent game that becomes a far below average result. It tend to make them shift focus to other titles, titles that are not from that software house.

From these point, I can now state the opposite of Zack’s reason to buy, which is from a gamer’s point of view, perhaps the shareholders will see it differently (as they focus on spreadsheets) when they look at returns, so when the next set of games fall short of quality, are returns still a guarantee? Again, my emotional side does not trust the setting here and I would personally prefer to sink $100 for shares on Frontier Development or Hello games based on their beta’s then on some of the final versions that either Activision or Electronic Arts has to offer. Yes we gamers are an emotional lot perhaps that will be part of what some might regard as ‘my failed view’ here, which would be fair enough.

 

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