Video Game Stocks Monthly: GameStop, Activision, and Zynga in the Spotlight

This newsletter lists the key events (including key game releases and financial news) in March, reviews our expectations for April, and provides our views of the current state of the video game industry. In March, GameStop (NYSE:GME) reported earnings that were in-line with expectations, while Majesco (NASDAQ:COOL) reported earnings that were below expectations.

The Wedbush Video Game Index—our market cap-weighted index of video game companies—had a March increase of 1% due to a strong month for Activision Blizzard (NASDAQ:ATVI) and Nintendo, despite weak NPD results for the industry in February. The S&P 500 and Russell 2000 increased 3% and 2%, respectively, due to easing European debt concerns and a signal from the US Federal Reserve that interest rates would remain low through 2014. Activision Blizzard benefited from a number of positive news items (the appointment of a CFO, the Mists of Pandaria beta, and the release date for Diablo III). Conversely, Ubisoft was down 13% as its shares pulled back from a strong February, and from concern over the drivers and impact of its equity line and warrants announcement. On a constant f/x basis, the Index increased 2%.  Excluding Nintendo, the Index increased 2% (on a constant f/x basis as well).

Total U.S. console software sales for February were $464 million, down 23% from last year’s $601 million, and below our estimate of $555 million (down 8%). Unit sales were down 22%, with average selling prices down 2%. PC software sales were $21 million (down 40%). THQ (NASDAQ:THQI) was the only covered publisher to exceed our expectations.

March game releases included Capcom’s Resident Evil: Operation Raccoon City (360, PS3), EA’s (NASDAQ:ERTS) Mass Effect 3(360, PS3, PC), and Nintendo’s Mario Party 9 (Wii). Despite a strong debut for Mass Effect 3, the launch of the PS (NYSE:SNE) Vita, and a relatively easy comparison (down 16%), we expect March US console software sales to be down for the fourth month in a row. In our view, software sales are more concentrated than in the past, and a relatively weak catalog means that sales will remain challenged until May, when Activision Blizzard’s Diablo III, Take-Two’s (NASDAQ:TTWO) Max Payne 3, and Ubisoft’s Ghost Recon: Future Soldier are released and cumulative catalog sales from February and March releases begin to once again grow.

We are cautiously optimistic about a return to sales growth in 2012 due to new hardware introductions (PS Vita, Wii U) and many high-profile releases (likely including Take-Two’s long-anticipated Grand Theft Auto V).

Key March headlines:

o 3/1 – Zynga (NASDAQ:ZNGA) unveiled the Zynga Platform and announced the beta of

o 3/5 – Activision Blizzard appointed Dennis Durkin as Chief Financial Officer.

o 3/6 – EA released Mass Effect 3 (360, PS3, and PC), shipping over 3.5 million units in the first week.

o 3/6 – Nintendo announced that it had sold 4.5 million 3DS hardware units in the US since its launch.

o 3/7-8 – Wedbush Securities 10th Annual New York Management Access Conference.

o 3/8 – NPD announced weak February US console software and hardware sales well below our expectations.

o 3/12 – Majesco announced Q1:12 results with an EPS miss, but left FY:12 EPS guidance unchanged.

o 3/14 – Zynga filed an S-1 for a $400 million secondary offering.

o 3/15 – Activision’s Blizzard Entertainment announced Diablo III (PC, Mac) will be released on May 15.

o 3/20 – Activision’s Blizzard Entertainment and announced the renewal of the World of Warcraft license

in Mainland China for an additional three years. Financial terms were not disclosed.

o 3/20 – Ubisoft announced an equity line of up to €54 million and plans for free share subscription warrants.

o 3/21 – Shares of The Game Group PLC were suspended from trading on the London Stock Exchange.

o 3/21 – Zynga announced the acquisition of social game developer OMGPOP for ≈ $180 million.

o 3/22 – GameStop announced Q4:11 results with in-line EPS and bullish FY:12 comps guidance.

o 3/26 – The Game Group PLC appointed PWC LLP as administrators.

o 3/29 – THQ announced Warhammer 40,000: Dark Millennium, previously an MMO, would be released as an RPG.

o 3/29 – Zynga priced its secondary offering. It will not receive any proceeds from the sale.

Key April events:

o 4/12 – March NPD U.S. video games sales data release.

o 4/19 – Microsoft to report quarterly results.

Michael Pachter is an analyst at Wedbush Morgan.

To contact the reporter on this story: Alex Capel at

To contact the editor responsible for this story: Damien Hoffman at