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In the wake of the launch of Grand Theft Auto V on Tuesday, an estimated 6.5 million video-game lovers will be spending the foreseeable future staring intently at blinking, coloured lights on a screen. Older investors may scoff – though that's a bit rich, considering the similarities between the two pursuits – but there's clearly gold in them thar consoles. Still, figuring out which gaming-related stocks are the winners is more fraught than just watching the sales charts.
Take-Two Interactive, the parent company of Grand Theft Auto series creator Rockstar Games, saw its shares drop on the day of its blockbuster product launch, sinking to $17 (U.S.) – somewhat below its 52-week high of $19.25 – despite rave reviews from game critics and analyst estimates that the title could generate as much as $1-billion this year.
In a report in July, Todd Mitchell and Yun Kim of Brean Capital may have found a reason for the dip: "The question is not what Take-Two can earn every five years with the release of a GTA title, but rather what is the core profitability of the company in non-GTA years." The company's earnings declined in 2008 not long after the release of the previous GTA instalment, and the share price followed. Although the financial crisis certainly affected consumer discretionary spending on things like video games, Take-Two's fortunes seem wholly tied to the franchise – its share price jumped 6 per cent on the news in 2011 that GTA V was in development.
Despite its star franchise's popularity, the company probably won't lay claim to the top-selling video game of 2013. That title will likely be seized by Call of Duty: Ghosts when it makes its debut in November, according to a report from U.S. retailer Gamestop Inc. that says the war-oriented franchise's upcoming release is "on track to be the most pre-ordered title of the year."
That's good news for Activision Blizzard, which was sold in July by its cash-strapped parent Vivendi SA for the bargain price of €6.2-billion ($8.5-billion). Call of Duty is seen as appealing to more "core" gamers, who are more loyal than "casual" fans, which would seem to indicate a stability that would favour buy-and-hold investors. But even with a strategy that includes rolling out multiple episodes within a longer story arc – the company has published a new CoD title every year since the series appeared in 2003 – Activision Blizzard's share price has fluctuated along with the fortunes of other series, such as the casual-gamer-oriented, once-world-beating-but-now-discontinued Guitar Hero.
The software companies themselves have strategies to soften the whims of the gaming market. For example, Take-Two surely hopes its new Grand Theft Auto Online platform will lead to more consistent subscription revenue. Countering that is the rise of "free to play" games, which are free to download and which allow the user a certain amount of gratis fun while the software prods the user to make in-game purchases that will supposedly enhance the experience.
Free-to-play games are menacing makers of both gaming consoles and the console games themselves, which can be expensive, so betting on companies that rely on a franchise or two is hardly a path to a secure return. Though stock watchers and gamers have a lot in common, they may be best served keeping their entertainment interests and their portfolios separate.
Dave Morris is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Dave on Twitter at @morrisdave.