Bracing For Weak Video Game Data Again (GME, ATVI, EA, TTWO, ZNGA)

GameStop Corporation (NYSE: GME) may be down today because of a Needham & Co. research downgrade where the video game retailer was cut to “Hold.”  There is another interesting call to analyze today and that is a call from Stern Agee warning about very weak video game sales for the month of March.  The NPD video game sales data is due Thursday afternoon and at least one research call is looking as though the sales could be awful again.  If the headline data is as bad as the call it would extend far beyond GameStop.

Today’s projection could spell further caution for Activision Blizzard, Inc. (NASDAQ: ATVI), Electronic Arts Inc. (NASDAQ: EA), and Take-Two Interactive Software Inc. (NASDAQ: TTWO).  One issue which could still be a thorn in the side of the video game industry is the freemium games and social games from Zynga, Inc. (NASDAQ: ZNGA) and others.

Stern Agee’s research team for interactive entertainment and internet stocks noted, “U.S. video game software sales in March 2012 were down 25% to 30% year over year, slightly worse than February’s 23% decline. We believe our estimate is slightly below the Street’s.”

The forward data is a bit ominous as well because the April comparable sales were up 16% a year ago and that is likely to translate to another double-digit drop as well.

The firm noted strength may arrive in May and noted, “We expect software sales in the month of May to improve (and potentially be up) driven by the launch of Max Payne 3, Diablo III and Tom Clancy’s Ghost Recon Future Soldier compared to L.A. Noire and a couple of smaller titles.”

If the data is really ugly on Thursday, video game stocks could have a very rough day on Friday just from the headline shocks.

While the broad market is up, video game stocks are lower.  GameStop Corporation (NYSE: GME) is down 0.5% at $21.31, Activision Blizzard, Inc. (NASDAQ: ATVI) is down 0.3% at $12.33, Electronic Arts Inc. (NASDAQ: EA) is up 1.6% at $15.80, and Take-Two Interactive Software Inc. (NASDAQ: TTWO) is up only $0.01 at $14.75.  Zynga, Inc. (NASDAQ: ZNGA) is also lower by 0.9% at $11.41.

JON C. OGG