Console Gaming Stocks

Posted on October 1, 2005 , filed under Stocks | Print This Post

Everyone knows that we are ending one gaming cycle and entering another. The introductions of the Microsoft XBOX 360 and the Sony Playstation 3 are set to refresh the console industry. Along with the new consoles, comes a bevy of new technologies. Both consoles will support, by default settings, high resolution 16:9 gaming and wireless functionality, both never seen before features on any console. I remain bullish on electronic game stocks and game related companies. The electronic entertainment industry has grown year after year and shows no signs of stopping. I predict that at some point electronic gaming will over take the movie industry in annual revenues. The mainstream way of investing in the electronic gaming industry is to invest in Microsoft, Sony or the various game publishing companies. I believe that Microsoft and Sony will play a cat and mouse battle for supremacy. It remains unclear if Microsoft can unseat Sony as the leading console vendor. I doubt it, but it also remains unclear what degree of impact the new Microsoft console will have on Sony. Microsoft has enjoyed success for its original XBOX console in the US and Europe. The company has endured weak sales in Japan, a key market for attracting Japanese game publishers. For now I would wait till initial sales numbers are announced for the XBOX 360 in Japan before investing in the company as a console manufacturer and games publisher. I believe that the majority of mid-cap listed game publishers have enjoyed a healthy run up in stock prices and are fully valued. Two of the stocks that I watch in this category are ATVI, Activision Inc. and ERTS, Electronic Arts Inc.. Small and micro-cap game publishers are too subject to a single bad title dragging revenues down. Even with a solid franchise, there is no telling how an existing game title will translate onto the next generation consoles.

So how do you invest in gaming stocks with the new consoles around the corner? I would look at investing in companies that are experiencing sluggish growth due the console changeover period. Businesses such as accessories manufacturers enjoy strong demand during a consoles introduction and slow growth during a consoles wind down phase. I would also look at game distribution companies that are experiencing inactivity due to the lack of available software titles as publishers prepare new software lineups for the new consoles.

One company I am watching in the accessories field is MCZ, MAD CATZ INTERACTIVE. Mad Catz has a strong recognizable brand name in the accessories market. The company is a long time player and manufacturer of controllers, steering wheels and other console add-ons. The company has also leveraged successful licensing contracts with Marvel to produce accessories based on their library of characters. I believe the company has been shorted due to lack of news and financial difficulties as the company prepares for the next console launches. MCZ is definitely a speculative play with tremendous upside potential. One concern I see is this News.com article that cites Microsoft will charge manufacturers a fee to produce third party accessories.

For distribution I am watching NAVR, Navarre Corp. Navarre Corporation engages in the publication and distribution of various home entertainment and multimedia products, including personal computer software, audio and video titles, and interactive games. NAVR has a strong distribution business. The company’s stock has recently taken a dip in price due to its efforts to diversify into other fields and rising concerns over an inventory buildup of its home entertainment products.

The XBOX 360 is set to launch on November 22nd, 2005. It would be prudent for investors to look for opportunities in accessories manufacturers or distribution companies before the launch of the console to reap the largest rewards. For now those are the only two stocks I’ve been following outside of the game publishers and console manufacturers. Does anyone else have any gaming stocks they’ve been watching? E-mail me.

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Pingback by RawGreed.com - Stock Updates, Raw Greed Awards, Business Gossip » Blog Archive » Purchasing Navarre Corporation

2006-05-09 10:39:59

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