07:31 Time to take profits in videogame makers? -- Barron's
Barron's discusses the booming videogame business, which three weeks from now will descend on Los Angeles for E3, the industry's biggest annual trade show. Basically, there is lots of bullish news coming from an industry in which share prices have jumped 50% to 100% since early '03. But some smart investors have been taking profits, preparing for what they see as more difficult days ahead as the industry looks toward the next generation of console games, coming in '05 and '06. Lately, business conditions have been excellent, notes Mike Wallace, an analyst at UBS. He notes that both Activision and THQ pre-announced better-than-expected 1Q profit, and that Microsoft's recent move to cut the Xbox's retail price is drawing new buyers. "Near-term, I'd still own them," Wallace says of the stocks. "Things look good, with the hardware price cuts, and big games coming. But my concern is that six months from now, in the fall, people will start looking into next year." In '05, Wallace predicts, U.S. videogame sales will be flat-to-down. Hardware sales, he says, are likely to be down as well. The next big growth year for the industry, he says, will be '07. The logic is clear: The current generation of game consoles is aging. The Xbox 2 is expected in stores by Christmas '05, which means no significant software titles for it much before '06. Wallace thinks Microsoft might provide details about the next Xbox at E3. But it could do otherwise, particularly if the new platform isn't backward-compatible with the current one. Meanwhile, the next-generation Playstation, the PS/3, isn't due until '06. He says that anyone who still owns any of the stocks this fall should start worrying about the impact of expectations for flat sales in '05. |
