Video Game Sales Continue To Thrive In Recession

You may have noticed, there's been a lot of concern about the economy lately. Consumers have finally gotten the news, and retail spending is starting to look ugly. As the numbers trickle in, investors are flocking to recession safe-havens, with companies like Wal-mart, Costco, BJ's, and Dollar Tree (eggs and bread for a dollar, go check it out). These companies make a lot of sense, but as I've discussed in other posts, if you want a sure-fire recession playing, video game stocks are a sure winner.

As you can see in the chart*, this generations domestic console sales are exceeding sales in 2007, when consumers were still spending like crazy. Other than the first week of October (when things were really hitting the fan in the news), consumers are showing they can't get enough of video games. Of course, given that you can play for hours and hours with zero incremental cost once you've bought in, it makes a lot of sense as an entertainment play during bad times.

Better still, the console base in homes is much greater than what it was at this point last year... As a matter of fact, the base is up by 100% over last year. That means that even if every system owner bought 25% less games than they did last year, game sales will still increase by 50% (for example, if you had 100 console owners last year buying 4 games a piece, but 200 console owners now buying 3 games a piece, you are selling 600 games this year vs. 400 last year).

Look for big-named, beaten-down publishers to make the most of this benefit. Take Two (TTWO) and Electronic Arts (ERTS) are both well positioned for a boost here when numbers start to become realized. Activision (ATVI) is solid, but not as beaten down as many others - the upside is still there, just not as much. Finally, Game Stop is down about 60% from it's highs, and is extremely well positioned to sell the most games, as they offer used games that these new console owners will be craving (if you just bought an XBox 360, you will want Gears of War before Gears of War 2). Look for GME sales to outpace any expectations that you hear from the street.

* This data was from VGChartz.com (Thanks, please don't sue me!)- which uses soft methods (like exit polling) to estimate sales. These numbers may or may not prove to be entirely accurate, but they've done pretty well in the past.

Activision Beats Street, Announces Possible Guitar Hero Shortage

Yesterday I said that I expected that Activision would probably miss expectations for their most recent quarter, and would have to announce they would be unlikely to meet previous guidance for the year. Not only was I wrong about both of those things, they also announced a $1 billion dollar stock buy-back, and said that there would be a possible short-fall of Guitar Hero World Tour games available this holiday season. Again, basically about at wrong as I could have possibly been. My bad. I hope the shirtless picture of Heidi Klum playing a toy guitar at least partly makes up for my mistake.

So now we know that game sales are through the roof. Activision beat expectations, EA's sales were up 40% and the CEO of TTWO recently announced that the recession was not hurting their sales... And yet, Game Stop (GME) stock price keeps trending down. It was as high as $33 bucks a share within the past month, but it touch into the $23s today. One of the companies best poised to make out in this environment, is continuing to get killed.... Dumb, dumb, dumb. Mark my words, GME will blow away the street on November 20th. Yeah, I've been wrong before. I know, I know... But...

American Apparel today announced they had same store sales up 22% in October. They were the number 1 retailer in terms of comp sales to announce. They beat EVERYONE! Yes, the stock isn't peaking, but it sure was up today. People are skeptical an weary of the current environment, but their performance can't be denied. I'm looking forward to some powerful earnings on the 10th.

And, for the record, I bought more ATVI yesterday afternoon. I know I expected bad things and expected the stock to hurt, but, it just got too cheap as investors were scared off late in the day. And, a little more research showed me that expectations were very low and easily beatable. Video games are going to thrive during this holiday season, and they are all severely beaten down. Now is a beautiful time to invest in the entire sector (except Best Buy, which is going out of business :-P )

Activision Bets Heidi Klum Stripping Will Sell You $200 Guitar Hero

Activision (ATVI) probably knows they are in trouble this holiday season. Though they will undoubtedly rake in a solid 12 million or so in sales for the newest expansion of World of Warcraft, that isn't going to be enough to meet the lofty $3.2 billion dollar revenue expectations of the street this year. For that, they need to sell a lot of console games, and they've made a huge bet on their newest installment of Guitar Hero, which may go down as one of the worst business decisions of the year.

First of all, this year's Guitar Hero is copy-catting EA's Rock Band, a big-time winner last year, into the full band version of musical rhythm games with Guitar Hero World Tour. The game, like Rock Band, will include the ability to play drums, two guitars, and sing karaoke on a microphone... which are all a ton of fun. However, people willing to shell out big bucks on stuff like this have already done so, last year, when they bought Rock Band. And, of course, the economy has also been completely trashed, so spending $200 to start a toy band seems somehow much less appealing than it did a year ago (trust me, I know this first hand).

To compensate for a not-so-innovative product, coupled with a horrible economic environment, Activision is buying into the Apple School Of Marketing, and throwing a butt-load of marketing dollars at the problem.

So far, I've seen three versions of roughly the same commercial, which involves a toy-band version of Tom Cruise's underwear and Ray Bay "Wayfarer" product placement ad from the movie Risky Business. The first one of these ads was a downright winner, and surely a classic. Not because it had Tony Hawk, Michael Phelps, Alex Rodriguez and Kobe Bryant all in the same ad (can you say "most expensive ad ever!!!?"), but mostly because Kobe Bryant takes karaoke REALLY freaking seriously, and it is impossible not to crack up while watching it. Observe:



See, pretty good stuff, right?! Oddly enough, this only has like 30,000 views on YouTube, even though it has been out for a couple weeks. Of course, dudes who buy video games and scour the internet for interesting content (i.e., pictures of girls), don't necessarily want to see a bunch of world-class athletes playing video games in their underwear (to each his own). So, this week Activision launched their secret weapon, Heidi Klum.... in alternate chromium covers!

In the less slutty version, she wears a shirt and dances poorly with a toy guitar.
In the sluttier version, she takes off her shirt, and dances poorly with a toy guitar.

As you can probably guess, the 2nd version (or the Director's Cut, as the marketing tools are calling it), has over 300,000 hits in the few days it has been up. I guess that means that the ad wizards have won, though I still think that when Activision has to resort to supermodels in undies to sell us video games, product sales are in trouble.

When Activision reports their earnings today, expect sales to be below expectations. Expect guidance also to be below expectations (though delivered with a tone that sounds like everything is super-awesome in video game land). Expect executive arrogance to be well above expectations... And tomorrow, expect ATVI stock to hit a new 52-week low.