The 7 Most Watched Software Stocks

People watch stocks for different reasons -- they're waiting for a dip in price, watching for a specific catalyst, gathering all the news and information that might affect stocks they already own, or considering a sell. Regardless of their motivation, we can better understand market sentiment by seeing who's watching what. With the Fool's free My Watchlist service, we have tens of thousands of people telling us the businesses that have, for whatever reason, piqued their interest.

The most-watched software stock is ...
Looking at the aggregate data, we see that Activision Blizzard (Nasdaq: ATVI) tops the rest in terms of watch interest -- the percentage of people keeping an eye on software stocks in general who are specifically watching each company.

There's a good reason for these investors' excitement. CAPS All-Star bigdawg215 gave his case for Activision Blizzard last month:

It seems to me many investors and so called "experts" from wall street do not understand this stock or video games in general. Yes there are pros and cons to this stock and I will try to cover them over the next few paragraphs.

Pros
In the past after you bought a game and beat it, you put it away and played it everyone once in while or maybe when friends came over (Ex.Guitar Hero). However, many recent games have allowed you to play against other gamers online to keep you interested in their product. They also offer extra content and maps downloads for a certain price (warcraft and cod). Why do you think Black ops sold 5 million copies in the first week for 60 dollars a pop. On X-box (not counting Playstation ) there are about 700,000-800,000 worldwide players playing this one game every night. Even at 4 in the morning there are still 200,000-300,000 players online. Currently Activision has a majority of its sales and online gaming from America, Canada,Europe and parts of South America. There is still a big potential market in China, Russia, India, Africa and South America where there is not much market penetration.The infrastructure for online gaming in these countries are still in the early stages and will only improve as technology does.

The reason online gaming is important Activision we need to compare it to a Movie studio and their revenue stream. When a major studio releases a movie it first goes to theaters for customers to watch it (revenue stream 1). Next it is released to pay per view or on-demand for those who missed it at the theater or want to watch it again (revenue stream 2). They make money when netflix, redbox and other online rental places buy inventory to rent that movie out (Revenue stream 3) Another form of revenue is when customers buy the movie once it is on blue ray or dvd (revenue stream 4) Finally when a television station or cable channel plays that movie they are playing royalties to the movie studio to show that movie(revenue stream 5).

When Activison releases a game the first initial buyers of a game pay anywhere from 50-60 dollars to own it. Once the game is six months old the price will fall to maybe 30 dollars but lets not forget that is what the companies like frys, walmart, best buy and fry charge. Activision is probably receiving half the retail price the retail stores are charging (revenue stream 1) The next "potential" revenue will only occur if the game is online capable or there is interest to play it on line. (revenue stream 2) I also say "potential" is because X-box charges players a monthly or yearly fee to play online. While Playstation allows players to play online for free. Currently I am unaware of how Microsoft and Activision split online gaming fees.

Cons
Every year companies like Activision lose market share to simple attrition. I am not talking about losses to other companies but just a change in lifestyle. Gamers get older and with new jobs and family the focus is shifted away. Only in your teens and twenties can you spend countless hours and money on video games. Activision needs to make sure there is always a new customers to replace the ones they lose. Another potential negative many people over look is the sub-culture of cheaters in online games. They are commonly referred to as Modders ( the illegal modifications they make to their game consoles) because they allow cheaters to rank up faster or have a unfair advantage when playing online by manipulating programs. Many players eventually will grow tired of this and will stop playing the games that allow this. Activision has programmers that continuously work on these cheats so they can issue updates to patch these programs. However, this is not beneficial to activision since they are wasting money and human capital to fix these flaws. There could be a better ROI if these programmers were working on new titles instead.

Yes this stock is not a big mover day to day. If you are looking for a better investment in the next year or so there are other opportunities. But this stock has a will show gains in the next 3-5 years

Here are the rest of the top seven most-watched companies in the industry, their watch interest, and the stocks' CAPS rating, to indicate how our investing community regards each one:

Source: Motley Fool, Motley Fool CAPS.

Whether you're keeping an eye on industry stalwarts like Microsoft, or up-and-comers like Rosetta Stone, it pays to watch. We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service. Click here to start now.