I’m a big fan of stock vs. stock comparisons, so I thought I’d do my own with Electronic Arts and Activision Blizzard.
Electronic Arts (ERTS): No matter how hard I try, I can’t quite put together a bullish case for Electronic Arts. You have a premium valuation combined with an uninspired product portfolio, a lack of margin leverage, and a general inability to deliver the big quarter. That’s not a good recipe for outperformance.
At the same time, I’m worried about the company’s decision to go after Take-Two Interactive (TTWO). While the deal makes sense from a financial standpoint given the synergies in sports and the addition of top-notch IP like Grand Theft Auto and Bioshock, it does make me question the company’s confidence in its abilities to grow organically.
Plus, now there are rumors flying around about weak pre-order activity for the new Madden. I can’t refute those rumors but I wouldn’t be surprise if Madden disappoints again. And think about the company’s sports lineup from a very big picture – Is NFL football getting bigger? It’s huge but I don’t see any signs of significant growth in the fanbase. I’d stay clear of this one.
And on to the enemy:
Activision Blizzard (ATVID): I think Activision Blizzard(note ticker symbol recently changed to ATVID) is a phenomenally attractive buy right here. Without a doubt, Activision was THE dominant software publisher in 2007 given the monumental success of Call of Duty 4: Modern Warfare and the Guitar Hero series. Will that continue this year? Absolutely.
Basically, I see just one potential problem for Activision Blizzard this year, namely the tough year-over-year comp in the Call of Duty series. There is simply no way Call of Duty: World at War will be as successful as CoD4. However, the Guitar Hero series will continue growing nicely, especially considering the recent addition of Guitar Hero: Metallica to the mix, which will no doubt be a huge seller.
Add in Starcraft II and World of Warcraft: Wrath of the Lich King and you have what is without a doubt THE most attractive software portfolio in the industry. And as for next year, top-dog studio Infinity Ward (which developed the outstanding CoD2 and CoD4, but NOT the so-so Call of Duty 3) will bust out a new Call of Duty game, and I’m very excited about the new racing series that will result from the acquisition of Bizarre Creations (which was behind the excellent Project Gotham Racing series).
Analysts estimates for ATVID remain far too low and I see the stock above $40 by year-end.
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