March madness for video games
EmptyThe Nasdaq hardly budged last month but many new-media stocks flew considerably higher, and video games deserve much of the credit.
Among those high-fliers was perennial loser Midway Games, the Sumner Redstone-controlled company that has lost 90% of its value in the past two years. In March, though, the stock rose 35% to $2.70.
Midway said last month that CEO David Zucker will leave the company and that Matthew Booty will be interim CEO while a permanent replacement was sought. Booty was senior vp worldwide studios division.
The video game sector in general was buoyed by the revelation that, whether or not the U.S. economy is in recession, Americans are still buying games and consoles in droves. In February, software sales were up 47% year-over-year while hardware sales were up 19%, research firm NPD said.
THQ, famous for games based on "SpongeBob SquarePants," Disney's "Cars" and "Ratatouille," as well as the WWE, was upgraded to a "buy" late last month by Citi Investment Research, and the stock was up 16.5% to $21.80 in March.
The stock, however, was beaten down 26% this year before to the Citi upgrade, reflecting concerns that its fiscal-year 2008 games are weak.
In a note justifying his upgrade and $29 target price, Citi analyst Brent Thill said he likes THQ's fiscal-year 2009 lineup of games, plus he noted that video games aren't sensitive to an economic slowdown and that he expects mergers and acquisitions to keep shares of the various companies afloat.
Shares of Electronic Arts, the biggest video game publisher, remained mostly loved by Wall Street analysts in March, with the average of 17 of them predicting a $63 stock in the next year. Its shares rose 5.6% to $49.92 last month.
The company's hostile takeover attempt of Take-Two Interactive Software has earned praise, especially ahead of the latter company's next installment of "Grand Theft Auto." Take-Two has been spurring the $26-per-share offer, though Wall Street seems to think it isn't going much higher as shares of Take-Two ended March trading at $25.52, down 3.7%.
Another March winner was Imax, the giant-screen theater company that is heavily invested in the trend toward 3-D exhibition. Shares rose 9.6% to $6.97, with Merriman Curhan Ford analyst Eric Wold issuing two positive reports on the stock last month.
Imax late last month announced its third large theater deal in as many months, the most recent being a 31-theater joint venture deal with Regal Entertainment.
"Imax has visibility to double its domestic theater base by the end of 2010 with just the contracts and backlog in place as of today," said Wold, who expects the stock to trade up to $10 within the year.
Treading water in March were XM Satellite Radio and Sirius Satellite Radio, a surprising underperformance because the Department of Justice finally blessed their merger agreement. The two still need FCC approval, which seems likely.
"We believe it is highly unlikely FCC approval will not be forthcoming shortly, most likely in April," said Citi analyst Eileen Furukawa, who thinks Sirius is headed to $4.25 a share while XM should rise to $17. Sirius closed March at $2.86 and XM was at $11.62.
March winners also included Apple, up 14.8%, Amazon.com (10.6%) and Netflix (9.7%).
In contrast, the Nasdaq rose just 0.3% last month.
New-media losers in March include Google, off 6.5% as investors fret about slumping advertising click-through rates. Google reports first-quarter earnings this month.
Also losing ground in March were Napster and competitor RealNetworks, down 19.6% and 2.1%, respectively, and Dolby Laboratories, which lost 18.1%.