More than reindeer playing games
Activision, Take-Two, THQ, EA rack up points in DecemberThe Nasdaq rose 0.3% in December, with entertainment software stocks and a few other new-media companies trouncing the broader markets.
That the publishers of video games saw their stocks move higher during the holiday gift-giving season comes as little surprise to some who have predicted such a move. The trick has been in choosing the biggest winners.
Many have been bullish on Activision, and their optimism has been rewarded for a few months. In December, the stock rose 34.1%. Its hot-selling games this season are "Guitar Hero III: Legends of Rock" and "Call of Duty 4: Modern Warfare."
Kaufman Bros. Equity Research analyst Todd Mitchell said that Activision had four of the top 10 selling titles in November. He also noted, though, that Activision and other video game publishers have enjoyed good runs in their stocks, so he has "hold" ratings on Activision and Electronic Arts.
Activision in December raised its guidance for the second time during the fourth quarter, plus, the company said it would merge with Vivendi's games business, with the combined company to be renamed Activision Blizzard.
Michael Pachter of Wedbush Morgan Securities wrote that — concerning the guidance boost — it was "deja vu all over again" for Activision, and he also likes the hookup with Vivendi.
"The merger strengthens Activision's product offering and expands its geographic reach, while allowing Vivendi to further monetize its success with 'World of Warcraft,' " he said.
While the analyst likes Activision, he prefers EA and THQ, both of which he rates "strong buy." Among THQ's holiday hits are "WWE SmackDown vs. Raw 2008," while EA boasts "Rock Band."
EA was up 4% to $58.41 last month, while THQ was up 15.3% to $28.19. Pachter's price target on EA is $72 and it is $35 on THQ.
The video game stock the analyst is most bearish on is Take-Two Interactive Software, home of the "Grand Theft Auto" franchise. The latest game in that franchise, though, will be released shortly and has missed the holiday season.
Take-Two shares advanced 23.2% last month, but Pachter said the gain is partially attributed to "unwarranted" speculation that the company is a takeover target. The analyst has a "sell" rating and $12 target on shares, which traded at $18.45 on Monday.
Mitchell disagrees with Pachter, and calls Take-Two a "buy." Last month he upped his price target to $21.
Elsewhere in new media, Goldman Sachs held an online advertising conference call with several industry players in December and concluded that Google "is best positioned to benefit from the continued online advertising growth."
Partially, that's because Google isn't as exposed to "premium ads" as is Yahoo, which would "be more vulnerable to a slowing economy."
On the whole, though, the Internet advertising sector "is likely to be insulated in a weaker macroenvironment given its secular growth and its inherent flexibility and measurability as well as its superior return on investment," according to Goldman Sachs.
For December, Google shares were down fractionally, while Yahoo shares were off 13.2%.
A big gainer in December was Imax, which surged 45.7% to $6.82, mostly because the company struck a 100-theater deal with AMC Entertainment.
Eric Wold, an analyst with Merriman Curhan Ford, said Imax should trade between $9.50 and $11 in the next 12 months, now that the AMC relationship "legitimizes Imax's strategy" of signing joint venture deals.
Investors in XM Satellite Radio got mixed signals in December, with Goldman Sachs analyst Mark Wienkes downgrading to a "sell" and Miller Tabak analyst David Joyce upgrading to a "buy."
Shares of XM fell 21.5% to $12.24. Wienkes has an $11.50 price target on shares and Joyce has a $17 target.
Napster got a downgrade to "hold" last month from Kaufman Bros. analyst Barbara Coffey, who halved her price target to $3. The stock closed down 29.1% to $1.97 in December.
Netflix caught an upgrade to "hold" last month from Citigroup analyst Tony Wible. That stock rose 15.2% to $26.62 in December.