It's been a few years since investors in gaming companies have had a lot to cheer about. Activision Blizzard (Nasdaq: ATVI), Take-Two Interactive (Nasdaq: TTWO), and Electronic Arts (Nasdaq: ERTS) have all left investors wanting more as gamers cut back on their activity during the recession.

But it feels like momentum is starting to swing in the other direction this holiday season. Companies have cut costs, become more flexible in their distribution models, and are starting to see financials improve as a result. Here are a few of the more notable developments:

  • World of Warcraft: Cataclysm sold 3.3 million copies in its first 24 hours.
  • Call of Duty: Black Ops grossed more than $650 million in its first five days.
  • EA's Need for Speed World has registered 3 million users online.

Electronic Arts is starting to look like it's hitting rock bottom, and is building a user base with Need for Speed World. After botching Medal of Honor, EA may learn some lessons for Crysis 2, Mass Effect 3,  and Star Wars: The Old Republic next year. And after seeing Activision dominate MMORPG games, EA is making a big push for mobile gaming dollars by purchasing Chillingo. It's not a traditional hard-core gamer market, but the "Top 25 Paid Apps" section on my iPhone is now littered with EA titles.

The financial position at EA is looking pretty solid as well. The company has $1.7 billion in cash and short-term investments with zero debt. That's nearly one third of the company's total market cap in cash.

Life After Grand Theft Auto?
And let's not forget about Take-Two, which just crushed estimates on the heels of NBA 2K11, Civilization 5, and Red Dead Redemption. Revenue was up 65% and earnings per share for the past 12 months were $1.06. Maybe there is life after Grand Theft Auto?

Longtime gaming investors know there are boom and bust cycles that can make these stocks extremely frustrating to own. It just feels to me like we're starting to see the slow end to a bust cycle and possibly the start of another boom and that, inevitably, will help all game companies.

What is your favorite video game stock and why? Leave your pick in the comments section below.

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