24/7 Wall St. » Halo 3

Are Video Games Really Recession Proof? (GME, ERTS, ATVI, THQI, TTWO)

247wallst — Fri, 18 Jan 2008 13:38:35 +0000

NPD released its monthly video game data showing that December video game spending increased 30.9% from December 2006. What is interesting is that software sales of game titles were up 36%, while hardware in game console sales was up 17%. These are strong numbers and while that strength is irrefutable, 2008 will be a tough repeat because of comparable sales to 2007 over 2006 levels from late 2006 console launches. The question is, "Are video games recession-proof?"

Video game sales are in the home and frankly video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is. Recession-proof might be a stretch. Sales will be strong and there will still be money made by the game publishers. But the holy grail of ‘comparable sales’ is going to be a tough one on the console makers in 2008. Here are just some of the articles today on the bet that game sales will or won’t hold up:

Eric Savits of Barron’s wrote "Recession? Not In The Video Game Business"
GamePro has an article "U.S. video game industry grows 43% over last year" saying that growth won’t be the same as 2007 but will still show growth in 2008.
Reuters notes "U.S. game sales rise 28 percent in December"
Silicon Alley Insider notes "December Video Game Sales Up 36%, Sony’s Lead Slips"

In hardware sales saw a 63% gain for the Sony PlayStation 3, a 123% rise in the Nintendo Wii, and up 15% in Xbox 360 sales. Hand-held device sales rose 54% for the Nintendo DS and 11% for the Sony PSP.

The next assured mega-hit title coming out is Take-Two’s (NASDAQ: TTWO) Grand Theft Auto IV. But at some point (and likely some point soon) these console sales aren’t going show the same gains like in 2007. This notion that World of Warcraft may potentially be coming to video game consoles might add literally millions of gamers to the MMORPG craze. All of this would be good for video games. Electronic Arts (NASDAQ: ERTS) has its waves of upcoming releases in the year and Activision (NASDAQ: ATVI) is looking interesting in the upcoming Activision-Blizzard merger. Microsoft’s (NASDAQ: MSFT) Bungie Studios may soon be its own public company too. Interestingly enough, we expect another merger in this sector although maybe not in the classic scenario and that has been under review for our Special Situation Investing Newsletter.

We think that GameStop (NYSE: GME) will actually hold up better thanoverall stores like Best Buy or Circuit City based on game title salesin 2008, but there just aren’t any new major platform launches on thehorizon for maybe another two years. That varies from person toperson, but some feel we’ll have the same gaming systems until 2011. Our notion is that video games might actually be somewhat recession-proof. But with $1.76 as the high part of the guidance out of GameStop, at $50.00 this still leaves its P/E at 28.4. If the economy gets any worse than we think can then investors might not be wanting to pay that multiple after a 400% stock rise since the start of 2005. We have been very positive on this on for some time and we don’t think it will go to hell in a hand basket. But it will take the U.S. not falling into a recession for us to stay very positive on GameStop today and this stock has been peaking since November. GameStop also a competitor coming on strong as well.

GameStop shares have fallen from $60+ at the start of 2008 before it gave raised guidance that the street panned and shares now sit right at $50.00 (with a $49.72 close). An 18% slide is significant, even if it is still up 100% from the 52-week lows.

Jon C. Ogg
January 18, 2008

Join our open email distribution list to hear other previews on mergers, IPO’s, restructuring, spin-offs, and more.

Microsoft’s Gift: A Bungie Spin-Off (MSFT, ERTS, TTWO, ATVI, THQI)

247wallst — Fri, 05 Oct 2007 10:58:13 +0000

Microsoft (NASDAQ:MSFT) is giving investors and the public a gift today. The company has announced that Bungie Studios, the creators of Halo 3 and the Halo franchise, is going on the path to becoming an independent company. It isn’t clear if this will ultimately be an IPO or a spin-off, but this will be a huge event.

Last night came the announcement that the company already saw Halo 3 generate $300 million in revenues in just the first week alone, although we noted that this will quite easily and quite rapidly reach $500 million. It is when, not if. We have noted how investors were looking at this, and now there is going to be a new way to look at it. We have joked before about the XBOX franchise being spun-off to existing holders, but this will do for now.

Microsoft will retain an equity interest in Bungie, at the same time continuing its long-standing publishing agreement between Microsoft Game Studios and Bungie for the Microsoft-owned "Halo" intellectual property, as well as other future properties developed by Bungie. Bungie Studios will remain in its current location in Kirkland, Wash.

We have already stated how the next generation games of Halo are already under conceptual development despite this being the "end the fight" version of the game. All you have to do is follow the money, it ALWAYS works.

Interestingly enough, Electronic Arts (NASDAQ:ERTS), THQ Inc. (NASDAQ:THQI), Activision (NASDAQ:ATVI), and even Take-Two Interactive (NASDAQ:TTWO) are all trading higher. This will end up becoming quite a unique situation for our readers of the SPECIAL SITUATION INVESTING NEWSLETTER as more data becomes available, and we eagerly look forward to providing special coverage of this special situation.

Jon C. Ogg
October 5, 2007

Jon Ogg produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Forget $300 Million Already…Halo 3 Will See $500 Million Very Soon (MSFT, GME, ERTS, TTWO)

247wallst — Thu, 04 Oct 2007 18:34:06 +0000

Microsoft (NASDAQ:MSFT) has generated over $300 million in sales from Halo 3 titles in the first week alone, with $59.95 of that being from me. There were more than 1.7 million copies pre-ordered, which broke its own record-breaking release of Halo 2 sales and beat the record sales set for Spider-Man 3 and of Harry Potter movies. Video games surpassed movies in annual sales in recent years. If you’ve ever played ANY of the Halo games you’ll know why.

It seems that there are somewhere in the vicinity of 12 million or more Xbox 360 units on the marketplace. When you include the Xbox 360 console sales for the upcoming holiday season and say that all titles will be the cheap $59.95 version you can see where this can quite easily generate $500 million in sales with less than 10 million copies sold. There are always lagging sales and these Halo 3 sales will continue. We haven’t even gotten the release for Halo 3 on PC yet, although several game store managers are not even sure if it will come for PC’s. We think it will by late 2008, but that’s speculation. The question isn’t IF Halo 3 hits $500 million. It’s just how quick it happens that is a question.

If you would like to read the full official story from Microsoft you can see it on the site here.
24/7 Wall St.’s Views on Halo 3:

First Day Disappointment? No way!
The investor’s look into Halo 3;
GameStop (NYSE:GME) sure went a bit far;
Halo 3 sucks away other video game dollars;
Halo 4 Already Coming…sort of, beyond the upcoming Halo Wars we mean!
Take-Two’s (NASDAQ:TTWO) Grand Theft Auto delays help other game companies.

Jon C. Ogg
October 4, 2007

Disappointment Over Microsoft’s HALO 3 Day One Sales? (MSFT, GME, ERTS, TTWO)

247wallst — Wed, 26 Sep 2007 23:20:29 +0000

We all know about the incredible hype and demand for Microsoft’s (NASDAQ:MSFT) monster release of HALO 3 from Bungie Studios. The figure that is being thrown out is roughly $170 million in the first 24-hours in HALO 3 sales. This one had 1.7 million pre-orders for the three game versions. This should have launched last Thursday at midnight and they could have tallied up a monster number for the weekend instead of just one day. By the way, there is no way to say "just" when you look at the one day numbers.

There is no reason to put the $170 million opening number as anything shameful. For a product this kicks you know what, and big time. That blows doors on movie releases. In my late-thirty-something mind I almost calculated movie tickets at the $5.00 level and then at the $8.00 level, but then I thought of New York and Chicago where $10.00 is quite the norm (if that went up in the last few months, well sorry..). So at the full-ticket price a $170 million one-day debut would be 17 million top-end movie tickets at full tilt. At a $59.99 base price to fully dilute the premium packages, which isn’t fair at all might I add, for all practical purposes is 2.8333 million copies rang up at the registers; and if you take the 20% hype-launch premium for a smoothing out through time then you’d have roughly 2.36 million units after you deduct a premium sale feature.

Regardless of what median game price you use on to of the $59.99 basic game price, this is massive. The numbers speak for themselves. I could say I wanted to see a break above this $200 million mark that some Wall Street analysts wanted to see on the first day. But this number is massive, even if I would liked to have seen that. The logical trade would have been to expect some profit taking in GameStop (NYSE:GME) shares after the massive price appreciation into this release. It somehow managed not to happen if you can believe it.

The Master Chief is kicking serious @$$ and it is hard to argue that this won’t be a driver for a little longer. We noted previously that 2008 compared to 2007 is going to be almost impossible to reach the growth rates of 2007 compared to 2006. That hasn’t changed. We still expect GameStop will probably issue upside guidance for one quarter and maybe even another. But excessive stock price moves for equity investors ultimately answer to the dark side.

If you review our full video game coverage sector you’ll see we’ve been a proponent on GameStop for quite a long time. There is almost no way their guidance could be bad. But we are also realistic on the money side of investors.

As far as Microsoft stock goes, how about a new mascot. Maybe a bad @$$ helmeted soldier isn’t an appropriate icon for most corporate office suite software packages. But it is for at least a temporary period. Once again, Microsoft needs to change its stock nickname from "Mister Softie" to the new and improved "Master Chief" from now on.

Halo 4 is already coming in some form or another, regardless of the "Finish The Fight" slogan;
The classic investor eyes on HALO 3 and Master Chief;
This one was classic…..
Master Chief punishes other game title creators in the pocketbook;
Massive NPD data for XBOX sales in games and consoles;
Grand Theft Auto delay good for other game publishers;
Electronic Arts admitted bad things before the GTA delay was known;
Goldman Sachs punished Microsoft over the XBOX RECALL issues;
The rise of Nintendo..but there ain’t no Master Chief nor no Halo for Wii-nies….

As for the rest, time to play…. Trivia question: What is more Fun? Covering the stock market or playing HALO????

Jon C. Ogg
September 27, 2007

Halo’s Next Generation (or Halo 4) Already Guarded (MSFT, GME, BBY)

247wallst — Mon, 24 Sep 2007 23:02:00 +0000

The lines are out. The costumes are on. Halo 3 is on imminent release. 10 minutes for the east coast. Halo 4, or the next version/series of Halo, is already under development. Have I been told so? NO. Have I been told the opposite? YES. Do I believe this is the end? Hell No!

Predicting sequels and predicting the outcome of a mega-hit series is pretty easy if you merely follow the money. I have no idea of the outcome of Halo 3 beyond the reviews….. Yet. But I can follow the money, and that is simple. There will be more Halo "money" for Microsoft (NASDAQ:MSFT). GameStop (NYSE:GME) and Best Buy (NYSE:BBY) will be banking on it.

I have no clue if Master Chief or the Arbiter make it out of this "last" episode alive. I would predict the Arbiter bites the dust and takes it for the home team, and Master Chief either lives or is questionable. But….. IT DOESN’T MATTER……. This is Sci-Fi and way out into the future. As long as some remnant of DNA exists these soldiers can be brought back. And even then, more powerful foes and entirely unknown foes of yet can surface.

This was supposed to be Microsoft’s foray into profitability in the entire Xbox franchise. They aren’t about to permanently kill off the ticket in the bread line.

Maybe it’s the Master Chief. Maybe it’s the Arbiter. Hell, Maybe they both die. It doesn’t really matter. Follow the money!!!!!

Regardless, "Finish The Fight" can not be finished yet.

OK, I have to go get my copy of the game.

Jon C. Ogg
September 25, 2007

How Investors Are Looking at Halo 3 (MSFT, GME, ATVI, TTWO, BBY)

247wallst — Mon, 24 Sep 2007 08:21:29 +0000

By now, everyone on earth knows of the launch of Halo 3. Microsoft’s (NASDAQ:MSFT) Bungie Studios is launching this at Midnight tonight. This should pretty easily surpass the $125 million in first-day sales from the predecessor Halo 2 title. But Microsoft is too large of a stock to focus on a video game. The good news for Microsoft is that this is the event that should help the entire Xbox venture a profitable foray for the company.

The Halo 3 retail sellers are where you have to look from the investor side, and that leaves just one pure-play: GameStop. On August 17 GameStop (NYSE:GME) stock was at a mere $40.00-ish price with many share price closes being $39 to $41 during the market malaise. But now shares sit at $55.28 as of Friday’s close, and are up another 1.3% pre-market Monday at $56.00. This represents over a 30% gain, and we all know the major culprit: Halo 3.

The truth is that we saw some bang up numbers out of video game salesfrom NPD and elsewhere for the sector. That will continue for anothercouple of months. But after this it is going to be tough to see thestrong comparable sales. Activision (NASDAQ:ATVI) has its "Guitar Hero3" coming next month and Take-Two Interactive (NASDAQ:TTWO) has the new"Grand Theft Auto" coming in early 2008.

Best Buy (NYSE:BBY) istoo hard to play as a stock merely for games because they sell plasmaand LCD TV’s, PC’s, PDA’s, phones, iPods, appliances, CD’s, and a fewhundred more things. GameStop will probably surpass expectations andmay even have another stellar quarter or two going into the holidaysand early next year. But unless the industry has kept major secretsand has many more games and systems coming out, then comparing 2008 to2007 is probably going to be very hard to with much fervor.

Afterseeing the stellar performance of GameStop stock reaching record highs,it won’t be too hard to imagine profit takers in the fold as this playsout. This industry is very cyclical based on major game titles andconsole launches, and the 2006 to 2007 period will almost certainly endup being a record until the next major gaming upgrade cycle. The flipside and good news for game publishers is that all the new consolessold and new graphic chips should at least keep demand high for videogame titles for months. But there are just so many Halo games.

Ifyou want a relative discount on this Halo 3 mega-hit, GameStop has beenoffering a 20% premium on game trade-ins if the credit is used for thislaunch (expires September 30); although there may of course be somelimits there. You might as well expect that the tech support jobs,universities, and high schools will have highly abnormal absences onTuesday and Wednesday.

Here was the original Halo 3 coverage of last week.
August game data from NPD was huge, with Xbox buying way up ahead of this launch.
Here was the look a couple weeks ahead of the launch.
These major title launches around each other can create a game title spending vacuum, although that now looks muted compared to the prior comparisons.
You can read the Gamespot.com review or watch the video review here.

Jon C. Ogg
September 24, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

For HALO 3, GameStop Aims To Out-Dork All Dorks (GME, MSFT, BBY)

247wallst — Tue, 18 Sep 2007 16:38:20 +0000

We have covered the launch of HALO 3 for Microsoft’s (NASDAQ:MSFT) Xbox 360 as one of the musts for gamers, and even covered how this would impact other gaming companies. This will be a win for GameStop Corp. (NYSE:GME) and even for Best Buy (NYSE:BBY), although GameStop sounds like it is going to be out-dorking the dorks.

GameStop will host “Finish the Fight” midnight events on Monday, September 24, 2007, at over 3,700 of its U.S. GameStop and EB Games stores for the long and highly-awaited launch of HALO 3. This will include Halo trivia contests and Halo 2 challenges that will lead up to the first sale of the game at 12:01a.m. If a Halo trivia contest isn’t dorky, then what on earth is? This sure sounds dorky to this 30-something dork. Halo fans can also check out GameStop’s “Halo Store.” Most participating GameStop and EB Games locations will begin their countdown to launch at 9:00 p.m. local time; however, customers are encouraged to contact their local store to confirm the exact time of the event.

Schools and tech support departments around the country are probably going to have very light attendance next Tuesday and Wednesday. NPD showed a good grab in the August sales for Xbox.

Jon C. Ogg
September 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Another Strong Month For Video Game Sales (NTDOY, MSFT, ERTS, TTWO)

247wallst — Fri, 14 Sep 2007 07:36:44 +0000

NPD has its data out for the month of August showing another massive month in video game sales. Game titles and hardware showed roughly a 46% combined gain over August 2006.

The Nintendo (NASDAQ/PK:NTDOY) Wii still took the lead with over 400,000 consoles selling. The negative part of this is that this represents a 5% sequential decline from July. And the other downside is that Wii-nies won’t be playing Halo 3 in less than two weeks like every Xbox 360 owner will be.

The Xbox 360 from Microsoft (NASDAQ:MSFT) sold over 276,000 consoles in August after announcing price cuts. The Xbox 360 crowd is obviously looking forward to this Halo 3 record breaking launch, because even early last month it came out that Halo 3 had pre-sold over 1 million copies of its blockbuster game.

Take-Two Interactive (NASDAQ:TTWO) also won out with its BioShock game title selling 491,000 units. Shares of TTWO are indicated higher pre-market. Electronic Arts (NASDAQ:ERTS) Madden NFL 2008 sold 897,000 units.

While the comparables for year over year from 2007 compared to 2006 are strong, you know this is going to set a huge benchmark for 2008 that will be tough to show this same sort of growth.

Jon C. Ogg
September 14, 2007

Halo 3: T-Minus Two Weeks (MSFT, GME, TTWO, ATVI, ERTS)

247wallst — Tue, 11 Sep 2007 17:46:00 +0000

In just under two short weeks the gaming event of 2007 will take place: Microsoft’s (NASDAQ:MSFT) Halo 3 hits the shelves. Halo 3 will launch on September 25, 2007, and this will be a key date for investors that watch video game publishers and sellers alike.

With September 25 falling on a Tuesday you can bet that schools (and tech support departments) around the U.S. are probably going to have record absentees. "I can’t come to school today, because I have Arbiter’s flu and the Covenant just has me worn out." Sure, certain public beta demos have been out for testing and for introduction for a while, but this game already has recorded 1 million copies in U.S. pre-sales and it’s a safe bet that almost every Xbox 360 owner will buy a copy of this game between now and early 2008.

It’s not really released how many copies of each version were sold or are being made available, but here is what is coming out:

The LEGENDARY edition for $129.99 with a collectible helmet case and bonus disks with supplemental content.
The Halo 3 Limited edition for $69.99 will have a hard sleek metal cover and a bound collection of information and art plus a bonus disk.
The standard edition for $59.99 is likely to be the biggest seller.
Of course there is also the OFFICIAL STRATEGY GUIDE for $19.99.
For the true enthusiasts, there is even the Xbox 360 Halo 3 Special Edition Console for $399.99.

After the recent Xbox recall gaffe, the Bungie games and Xbox unit needs a blockbuster. This was the year that the entire Xbox venture was supposed to become profitable, but the charges took care of that. Also, what about that darned Halo-based movie (and is this a real pre-preview)?

GameStop (NYSE:GME) has to be happiest about one thing: there’s no Chinese lead paint in video games. Take-Two (NASDAQ:TTWO) already got its bad news out of the way after it delayed its release of the new Grand Theft Auto franchise game until 2008. Now it looks like it will just be Halo 3 that creates a vacuum for other gaming companies in a couple weeks.

If you are Activision (NASDAQ:ATVI) or Electronic Arts (NASDAQ:ERTS), you might want to wait until after the first week of October before making any major release announcements. Companies that make video game announcements around that time will not get heard. GameStop Corp. (NYSE:GME) shares closed up 2.8% today at $50.18, just over 3% from the all-time highs of $51.99.

Hopefully this will help Microsoft (NASDAQ:MSFT) finish its own fight. Microsoft’s stock should no longer be called "Mister Softie." It’s new nickname should be "Master Chief." If you want all the last minute news on it, you can access the Xbox.com site here.

What would a spin-off of Bungie and Xbox be worth to Microsoft shareholders? It doesn’t matter because it almost certainly won’t happen, but it would be an interesting exercise.

Jon C. Ogg
September 11, 2007

Jon Ogg produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER; he does not own securities in the companies he covers.

*IMAGE PROVIDED BY BUNGIE STUDIOS.

GameStop’s New Highs After Earnings & Guidance (GME)

247wallst — Thu, 23 Aug 2007 08:02:30 +0000

GameStop (NYSE:GME) is trading up 7% pre-market on what will be new yearly highs and all-time highs after posting earnings. A quick summary is $0.13 EPS on revenues of $1.3382B versus $0.09/R$1.2B estimates (prior guidance was only $0.06 EPS). It now sees comparable sales up 30 to 32% and issued next quarter guidance of $0.19 to $0.21 EPS versus 0.18 estimates and raised its annual guidance.

Total sales increased 38.9% to $1,338.2 million in comparison to $963.3 million in the prior year quarter. Comparable store sales increased 29.1% during the second quarter, also beating previously released guidance of 16.0% to 18.0%. During the second quarter, new video game software sales surged 49% and new hardware sales soared 87%. GameStop surpassed the 1,000 store count internationally and said it is on the way to achieving its forecast of opening between 500 and 550 new stores during the year.

RAISED GUIDANCE: For Q3 2007, GameStop is forecasting comparable store sales to range from +30.0% to +32.0%. Diluted earnings per share are expected to range from $0.19 to $0.21 (compared to $0.18 est.). Due to strong Q2 it is raising full year 2007 diluted earnings per share guidance to range from $1.45 to $1.48; and revenues are now projected to grow between 20.0% and 22.0%, with expected comparable store sales ranging from +15.0% to +17.0%.

GameStop has to be loving the Wii. The top selling video games during the quarter were GUITAR HERO II from Activision, NCAA FOOTBALL ’08 by Electronic Arts, MARIO PARTY 8 by Nintendo, Nintendo’s POKEMON DIAMOND and PEARL, and FORZA MOTORSPORT 2 from Microsoft. Also on deck for the coming quarter is Halo 3 sales, and it appears that over 1 million copies have been pre-sold from video game retailers in the U.S. alone.

GameStop’s prior high is $44.76 on a split-adjusted basis, and shares are up around $46.00 pre-market.

Jon C. Ogg
August 23, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.