Nothing ever happened, except reverse splits and the
French.
LOL! Great quote. And I'm glad somebody made money on MPRS!
Here's more to your bubble theory. I'm shocked at how bullish this article is....:
businessweek.com
TECH TRADER
Activision: Pulling the Joystick into High Gear
With a big video-game hit of its own and new console systems about to lift the industry, the software developer is hot -- and so is its stock
When Activision (ATVI ) introduced Pitfall for the Atari 2600 game system way back in 1982, the video game sold well over a million copies and put the fledgling company on the map. In the nearly two decades since then, the company has had some successes but nothing to rival its first big hit -- until now, that is. These days, Activision is riding its hottest title ever, Tony Hawk's Pro Skater, and the sequel, which together have sold more than 4 million copies. That, plus the growing excitement over new video-game console systems, such as Microsoft's Xbox and Nintendo's GameCube, have given the developer of video-game software some hot prospects.
Investors have taken notice. While the overall stock market has been slowly going down the tubes this year and most tech stocks have been twisting in the wind, Activision's stock has been racking up impressive gains, with a 60% advance year-to-date. It currently trades at around $24, just a tad below its 52-week high. One reason: Activision -- the No. 2 developer of video-gaming software, sandwiched between industry leader Electronic Arts (ERTS ) and THQ Inc. (THQI ) -- is the only major player to double its market share in 2000.
SOLID INFRASTRUCTURE. Further gains seem likely. Backed by Microsoft's marketing dollars, the introduction of the highly anticipated Xbox, which will go head-to-head with Sony's successful PlayStation2 system, is expected to generate a massive amount of spending on software titles. Activision, based in Santa Monica, Calif., is well-positioned within its industry and should see at least 30% or greater top-line growth, according to Miguel Iribarren, research analyst for interactive entertainment at Wedbush Morgan Securities. In the fiscal third quarter, which ended on Dec. 31, the company exceeded analysts' expectations with earnings of $20.5 million, or 70 cents per fully diluted share, on revenues that were down slightly to $264.5 million. But with a solid infrastructure in place, margins should rise from there, Iribarren says.
Long term, Activision -- and the entire video-gaming-software industry -- should benefit from the transition occurring in the console-game business as hardware makers introduce their new products. PlayStation2 came out last October, and GameCube and Xbox are both due out this fall. Microsoft has announced an allocation of $500 million to market the platform.
For up to two years before completion of these transitions, software sales tend to become depressed as consumers wait for new machines instead of purchasing older systems. This leads to pricing pressure on the older software: When the new machines are introduced and the accompanying software is rolled out, the old games typically look pretty outclassed.
STRONG POTENTIAL. Once the new consoles hit the market this fall, however, the gaming-software industry should experience a boom that could last up to four years, as gamers gobble up new software. And with Microsoft entering the business, this cycle is expected to be particularly strong. "The Xbox is a great machine, and gamers and developers are extremely excited about it," notes Arvind Bhatia, vice-president and equity analyst at Southwest Securities. Bhatia believes the video-game industry has the potential to grow 30%-35% this year, up from 20%-25% in previous cycles. The analyst notes that in the mid-'90s, Sony (SNE ) entered the video-game business and, within a few years, became a major player. "I think Microsoft has got similar potential to take hold of the industry."
A portion of the industry's growth is due to changing demographics. Video games aren't just for kids anymore: The average age of players today is 28, according to Bhatia. Though teenagers account for a good portion of the purchasing power in the interactive-entertainment area, many people who were teens in the '80s and '90s are still playing video games. In addition, more women are taking up gaming to relieve stress. This mass appeal is the reason the video-game software market is huge -- about $20 billion worldwide. In the U.S., the market is about $7.5 billion, roughly equal to annual movie box-office revenues, even though the average price of a video game has declined during the transition from cartridges to CD-ROM.
It wasn't always so rosy for Activision. In the fiscal year that ended in March, 2000, the company chalked up a $34.1 million loss. Then, at the beginning of the current console transition last spring, its stock bottomed at 5 3/8 after it became obvious that profitability in the sector would be way down for the year. The company responded by terminating some product lines and closing certain distribution systems. But when Sony released its PlayStation2 this past fall, the interactive-entertainment sector started to perk up a bit, since it had a new platform generating demand for software titles. President and Chief Operating Officer Ronald Doornink, who joined Activision in 1998 from food giant ConAgra, is credited by analysts with cutting costs through improving internal processes and streamlining operations.
"TOP RATINGS." Iribarren, for one, is becoming a believer. "When I initiated coverage on Activision in August," the analyst says, it was "with a long-term attractive [rating]. The company had a very poor record of profitability, had trouble containing costs, and had unprofitable PC products." But in the fall, Iribarren says, he took note of some of the games the company had in the works, read some of the reviews, and did some product testing. "Of the three key brands they were launching that fall, every one of those games was getting absolute top ratings from the reviewers," he says. Iribarren adds that he was impressed by Activision's strong licensed content, including its Spider-Man, X-Men, Toy Story 2, and Blade games.
Glitches could still alter this rosy scenario. Should the new consoles due this fall not be released on time, sales of software would be delayed, lowering revenues for the all-important Christmas quarter. Video-gaming software companies typically land about 30% to 50% of their revenues in the last quarter of the year. Then there's the challenge of continuing to develop interesting games consumers want to buy.
Activision also must successfully make some tricky moves into new market segments. For instance, the company is "banking on a big piece of growth" from a foray into extreme games based on such sports as surfing and BMX biking, Iribarren notes. The hard part will be expanding into the new genre without cannibalizing sales of other Tony Hawk games, the analyst adds.
BANKING ON GAME BOY. Adapting to new product platforms also is key. Nintendo, for example, is releasing its handheld Game Boy Advance system this June. Robert Kotick, Activision's co-chairman and chief executive officer, expects this release to drive significant growth in the portable video-gaming industry. Activision receives 16% of its revenues from software developed for the current incarnation of Game Boy. PC software represents roughly 24%, with console software constituting the lion's share, at 45%.
"I think it's going to be an incredibly important platform over the next five years," says Kotick, who believes the newest Game Boy will rival Xbox and GameCube in its significance to Activision. "Up until now, Game Boy had been a device that appealed to a younger demographic, but the Game Boy Advance quality is so great, I think you're going to see the 12- to 25-year-old demographic that has historically not really played portable games start to play."
Internet-based games also will take off eventually, though probably not until more consumers have speedy broadband hookups. "Right now, you don't have much of a revenue-generating model [for online games] because not everyone has broadband," Bhatia says. "As broadband becomes more prevalent, then you're talking about online gaming becoming a more real revenue opportunity."
Kotick sees broadband as a big growth opportunity in a couple of years. "By the end of this five-year cycle, we could possibly have broadband households in the U.S. equal to dial-ups, and you're going to start to see an even greater number of devices than ever before being able to deliver the video-game experience." That, combined with Microsoft entering the market, the CEO says, will add "incredible consumption." If Activision can just get its fair share, it should do well. |
