Activision, On Top of the Game?

Posted Sunday, June 29, 2014 by
Dave Green • 3 min read


game palyingAs the World Cup games in Brazil continue to surprise and excite, many investors are focusing on the different aspects from which they can gain, whether it is soft drinks maker Coca Cola that will benefit from all those cans sold at the game or McDonald's from all those hamburgers gulped down by millions of World Cup fans in between matches. But while investors ponder and attempt to carve out a game plan to extract their alpha from the World Cup there is another game in town that may benefit. It’s the gaming industry, with two big competitors, Activation Blizzard and its arch rival Electronic Arts, competing in their own world cup for domination in the gaming arena. For stock investors playing the game, it is important to assess which player will be on top of the game, Activision or Electronic Arts? In this article we are set out to examine what wild cards each player has and which can be on the top of the game. 

Know the Players

Electronic Arts, or as it is popularly known among sports fan, EA (“it’s in the game”), has been attempting to capture even greater market share, initially through its perennial update of oldies-but-goodies like FIFA (which is likely to benefit from this year’s World Cup) and the 15th release of the very popular Madden game. But EA is also gaining ground through FPS games which, for the uninitiated, are first person/third person shooter-type games. FPS is a rapidly growing segment and lately capturing an even larger portion of EA’s sales, which is why at at the recently held 2014 Electronic Entertainment Expo, the EA marketing team highlighted the release of two FPS games, Titanfall and Battlefield Hardline, the latter most especially as industry experts believe it could go toe-to-toe with the genre leading Call of Duty.       


Speaking of Call of Duty, at the Expo, Activision introduced three new Call of Duty, aka COD, games for FPS gamers to enjoy this year. COD has, for many years, been the market leader of the FPS genre, but has still gained new found popularity as a result of outstanding product placement on the hit TV series House of Cards. Besides the COD titles, Activision has other games in its pipeline including the latest edition of the Skylanders franchise and what experts are saying is the single most eagerly awaited game this year, Destiny, a multi-player which many gamers believe could meet or even surpass not only COD’s following but market share. With FPS games such a huge draw, Activision isn’t relying solely on sales of software but also on downloadable content for both Xbox and Sony platforms.


market share


Who is on top of the Game?

 So which of the two is doing better? If one would look at the stock performance only, then Electronic Arts and its impressive stock return might be it. Yet, and in spite of the stock performance, a look under the hood reveals that Activision has stronger fundamentals, with better cash flow and stronger earnings per share. But even more important to gauge the champion is to see which one will gain market share at the other’s expense. As seen in the chart above comparing revenues of the two, Activision maintains a higher market share and while EA stock may rally, the company has consistently failed to gain any market share from Activision. Therefore, based on this data, one might conclude that Activision is at the top of its game and, perhaps, undervalued. How undervalued? The bulls eye $30 per share, more than a 30% upside. Will that target be reached? Only time will tell.


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