As the eighth generation of consoles arrives, lines will be drawn and one must pick which system to pledge allegiance to. But what about the games? After all, a console is just a whirring box of parts unless you have something to play using it. Launch titles will soon follow the console releases, and the big names in gaming will be looking to cash in on next gen fever. One company, Activision Blizzard (NASDAQ: ATVI), is riding a wave of good press and the release of highly anticipated game franchises that will make gamers' and investors' mouths water.
Price target boost signals great expectations
Activision got this season off to a good start when Credit Suisse upped its price target to $25 per share from its initial $23 per share setting . Analysts took the news well, upgrading the stock to a "buy" and issuing numerous "outperform" ratings. In addition, Activision is sporting a P/E ratio of 17.04, which is in line with its current $17 per share price range, making it an affordable buy. Going into the heart of the holiday shopping season, this shows that investors are expecting big things from the video game titan, and with the latest editions of Call of Duty and Skylanders set to be released, it's no wonder why investors are getting excited.
Stronger COD sales coming up?
Call of Duty: Ghosts, despite the massive ad campaign, lost the battle with Take-Two Interactive (NASDAQ:TTWO) owned Rockstar's record-breaking Grand Theft Auto V in initial sales figures, making $500 million to GTA5's $800 million.
However, Activision reported that it made $1 billion in sales shipped to retailers. Considering that the game made its initial premiere alongside Microsoft's Xbox One launch in May, gamers may have simply delayed buying the game. GTA5 had the advantage of being released in September, which was far enough away to justify a purchase for GTA fans, along with the rarity of GTA games in comparison to Call of Duty's frequent release schedule. So, while Rockstar may have won the first battle in initial sales, it may still work in Activision's favor if gamers really are waiting to play Ghosts on the next-gen, and Rockstar is close to peaking on GTA.
A toy tie-in and a Wii foothold
Of course, Activision doesn't just get a price target boost based on just one game. In an interesting move, Activision and Hasboro (NASDAQ:HAS) teamed up to make a bundle of Transformers games for the DS and the Wii. While Nintendo is largely sitting out the console wars because the Wii U has already come out, it is still a widely sold console system that bills itself as family friendly.
In this vein, the Transformers video game franchise, a popular toy franchise with kids, makes sense for a video game console that targets a demographic that is likely to play Transformers and have a Wii. Sure, it won't get the glitz and the glamour that a shooter like Call of Duty would receive, but it represents diversity in game development that will show investors that Activision is more than just a franchise catering to shooter fans and PC gamers, which will win applause with gamers and investors alike.
The bottom line
Activision's price target increase appears to rest on the assumption of a strong performance in the early days of the eighth generation of consoles. With a play on the Wii and DS, Activision is also looking to corner an overshadowed section of the industry while other developers, like Rockstar, go for a chunk of the Xbox/PS4 pie.
For the moment, the video game industry will largely rise and fall together, console and game maker alike, but Activision may rise highest. Take-Two may have peaked with GTA5's smash success this fall and won't have as much of a new console bounce, even though GTA5 will be sold for the new consoles. Hasboro is a toy-first company, and should see a good fourth quarter thanks to the Activision partnership, but fluctuations will come from toys rather than video games.
Armed with reliable titles and toy tie-ins, Activision is able to play to families and hardcore gamers alike, which will make for a strong introduction to video games' eighth generation.