Video Gaming becoming Profitable? – MSFT, ATVI, TTWO, GME

Unless you have been living in a hole, then you probably already know about the huge success that is Halo. Already in its first week Halo 3 has brought in $300 million. It is almost a known fact that it should get up to $500 million pretty soon. However, some of you may not know that the game was created by Bungie, a child of Microsoft (MSFT). But with their great success, Bungie feels they are now experienced enough and ready to venture out into the world on their own. Microsoft has agreed to let them go independent. It is not known if they will stay private or look into a possible IPO.

Before we go on, we must look at how the success of Halo 3 would have effected a smaller company, such as one in the video game industry. Granted the $300 million would boost most stocks, but to a huge company, like Microsoft, that could be considered chump change. Early this year, Microsoft’s Xbox division reported a charge of $1 billion in warranty repair alone. To see the difference we can look at Activision’s (ATVI) market cap of 6.54 billion compared to Microsoft”s market cap of 280.55 billion. It is pretty obvious that $300 million would have a much greater effect on Activision.

Potential Growth:

Another aspect of the video game industry we must examine is potential growth. I personally think the real competitive nature of the industry came about when Microsoft entered the game with their original Xbox. We instantly had a battle of Sony vs. Microsoft vs. Nintendo. Moreover, as years go by so does the growth of the consumer base. When it comes to video gaming, we usually associate it with teenagers; however, as these consumers get older they won’t necessarily stop gaming, so it can only increase the amount of potential consumers. Everything video gaming is also considered technology, and, as we all know, technology constantly needs to be updated. This means that new games and even consoles will keep being developed.

Negatives:

There are some downfalls in the industry. One if them being time between launches. For example, Bungie waited two years between their release of Halo 2 and Halo 3. Between those periods they really didn’t have any other big sellers come out. Most investors would probably just show up around launch time rather then holding long term. Another negative is the delay. Lot of video games don’t actually come out when they initially say they will. Grand Theft Auto 4 was suppose to come out at the end of this month, but then got delayed all the way to April ’08. Playstation 3′s Rainbow Six got delayed multiple times before it finally came out. Not something an investor could feel secure about.

So obviously there are some problems that these companies need to fix, but as time and this industry grows things will probably change for the better. If you are looking for the next big blockbuster in gaming, then keep your eye on Activision’s Guitar Hero 3 (Oct. 28) or Take-Two Interactive Software’s (TTWO) Grand Theft Auto IV (April ’08). You also might want to look into Gamestop (GME) for the holiday season.

What do you think about the video game industry’s potential?