After a few years of declining sales the video game industry showed signs of life as 2013 came to a close. The arrival of the Xbox One and PS4 -- and to a lesser extent a price cut on the Wii U -- have helped give gamers hope for a recovery in 2014.
Let's go over four of the names to watch in the year ahead.
Activision Blizzard (NASDAQ: ATVI)
It hasn't been a great year for Activision Blizzard, but things should get better in 2014. Yes, Call of Duty: Ghosts was a hit, but with diehard gamers failing to snap up anything other than tentpole releases, it's been a year of declining revenue and earnings for Activision Blizzard. The upside is that the company has managed to consistently surpass the market's watered-down profit forecasts.
Those same pros see top- and bottom-line improvement at Activision Blizzard in 2014, and that could be the ticket to finally get the share price out of the teens.
Take-Two Interactive (NASDAQ:TTWO)
Historically speaking, now is when investors should forget about Take-Two. Financial results peak whenever a standalone Grand Theft Auto game is released, only to languish in the years between the titles.
Grand Theft Auto V was the latest bar-raising entry in the iconic franchise, and analysts see its record-breaking performance since its September rollout resulting in a 91% surge in revenue to $2.3 billion in its fiscal year ending in March. Take-Two has struggled to fill the void between the releases, and that's why analysts see revenue plunging 42% to $1.4 billion in fiscal 2015. Wall Street's erred on the side of being conservative. Take-Two has blown through analyst profit targets with ease over the past year.
Another angle to Take-Two's story is its allure as a takeover target, as larger rivals or media giants make a play to offset sluggish organic growth.
Online gaming has been a tricky niche for stateside players. The dwindling number of World of Warcraft players over the past two years bears that out. However, it's a different scene in China, where the leading providers of online gaming continue to thrive.
NetEase has been at it for years, and even though it was singled out by Activision Blizzard as the licensee to handle World of Warcraft, it has plenty of in-house releases to keep growth coming. Analysts see NetEase growing revenue at a 17% clip in 2013 and 15% in 2014. Despite the steady double-digit growth, NetEase is fetching less than 13 times next year's projected profitability.
When outgoing CEO Steve Ballmer announced that Microsoft's future will be that of a services and devices company, it became clear that the Xbox will be a big part of its future. Unlike PCs, which are fading in popularity, and the smartphone and tablet markets, where Microsoft is little more than a niche player, gaming is an area where Microsoft dominated in this country during the Xbox 360's reign, and it's in a good position to stay there with Xbox One.
The new system isn't just about gaming. It's the center of a home theater environment, and we'll be seeing that early in 2014 as Microsoft begins rolling out original programming. Microsoft's near-term profitability will naturally still be dictated by its PC operating system, productivity software, and server tools, but as those categories collectivity meander, it will be up to the success of the Xbox One to fuel its growth.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard, NetEase.com, and Take-Two Interactive and owns shares of Activision Blizzard and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.