Stocks and scares

This time last year we began to understand that US sub-prime mortgages had infected the entire financial system, bringing on an acute case of credit crunch. Markets have fallen ever since, as relief at the unprecedented global government assistance that’s been doled out at what’s left of the banking industry is tempered by fear of the sharp and likely deep recession ahead.

Games are said to be recession-proof, but you wouldn’t know it from the share prices of the leading US companies – investors have slapped the entire sector (bar Activision Blizzard) with a sub-prime rating.

Forced selling by hedge funds, a return to the 1930s, and, more recently, weaker earnings due to dollar strength have all been blamed for a rout that’s taken EA back to 2000 levels: A post-millennium bug, or the buying opportunity of a lifetime?

(All prices are correct as of the close of business on November 13th 2008)

Electronic Arts

Share Price: $22.22
Market Cap: $7.1 billion
High: $60.35
Low: $19.28 (52 Weeks)
Down: 60 per cent (past 12 months)

With Electronic Arts’ share price headed back towards the level it traded at when the 20th Century kicked off (adjusted for splits), CEO John Riccitiello’s pre-Halloween warning on October 30th that retailers were growing cautious – suggesting consumers were closing their wallets – further spooked investors. The shares fell 25 per cent in a day and have languished ever since, as investors weigh the success of Spore and Madden ’09 and new titles like EA Sports Active on Wii against higher costs. EA is cutting six per cent of its workforce, but Riccitiello insists he’s still bullish long-term.

Activision Blizzard

Share Price: $12.57
Market Cap: $16.5 billion
High: $19.28
Low: $9.41 (52 Weeks)
Up: 21 per cent (past 12 months)

Twice the company, Activision Blizzard’s combined value has held up since its merger formally completed to make it twice the size of former leader EA. Still, the share price is well off recent highs, despite better than expected Q3 earnings and a $1 billion share buyback plan. Guitar Hero: On Tour is pouring money into the firm, and rival MTV winning the Beatles’ rights won’t matter much – there are plenty of valuable band brands around. Rather, investors will watch Christmas sales, WoW subscription numbers, and look for merger synergies, such as Asian inroads and the rollout of Blizzard’s online smarts.

Take Two

Share Price: $11.86
Market Cap: $829 million
High: $27.95
Low: $10.77 (52 Weeks)

Take 2 isn’t the first entertainment firm to create zeitgeisty products while being stalked by deep-pocketed predators. GTA IV’s release may have been over-shadowed by EA’s pre-emptory bid attempt, but after EA walked away in September and T2’s share price cratered to below pre-bid levels, memories of Liberty City proved more enduring. Chairman Straus Zelnick insists the company’s development roster and financials are solid, but with the Housers’ contracts expiring next year a new bid can’t be discounted – particularly if the credit market thaws, freeing other firms to table an acquisition.

Microsoft

Share Price: $21.25
Market Cap: $189 billion
High: $36.72
Low: $20.28 (52 Weeks)
Down: 37 per cent (past 12 months)

Pundits point to Microsoft’s failed bid for Yahoo and the Google threat, but in reality the firm has all but followed the Nasdaq. With over $20 billion in cash reserves, Microsoft has only had second-order effects to fear from the credit crunch. Cutting the 360 price has boosted console sales.

Midway

Share Price: $0.37
Market Cap: $31.1 million
High: $4.48
Low: $0.20 (52 Weeks)
Down: 86 per cent

In 2005, Midway Games’ share price passed $23, which puts the 86 per cent 12-month plunge into an even more horrific context. The company reported losses of $75 million and new chairman Peter Brown must hope cost-cutting and Mortal Kombat Vs DC Universe can lead a fightback.

THQ

Share Price: $4.20
Market Cap: $497 million
High: 29.94
Low: $3.99 (52 Weeks)
Down: 85 per cent

Try telling THQ shareholders that games hold up in recessions. Another member of the 85 per cent-down-in-a-year club, THQ reported ballooning second quarter losses of $115 million. The company plans to cut 250 jobs and development spend by $100 million.