Do video games and investments mix?

The importance that the video games industry places on successful AAA releases has never been clearer, with development costs, sales and targets scrutinised throughout a game’s lifecycle. It seems easy, therefore, to assess the relative success of major publishers on the performance of their biggest releases – but does that clarity distil through to stock prices?

5 of the biggest publishers listed on global markets – Ubisoft, Nintendo, EA, Activision and Take-Two – had major releases that topped the charts in 2013.

Ubisoft – Assassin’s Creed IV: Black Flag

Ubisoft’s contribution to the top five came in Assassin’s Creed IV: Black Flag, the latest iteration in an annual series of action adventure games. Despite a positive critical response, the game has not matched the sales records set by its predecessor, Assassin’s Creed III, and ended up as the sixth bestselling game of the year (III, for comparison, was the second).

Shortly before the release of Assassin’s Creed at the end of October, Ubisoft announced the delays of key titles Watch Dogs and The Crew. They revised their financial projections accordingly, causing a major drop in their share price: over 25% in a single day.

Despite its weaker sales, Assassin’s Creed 4 has contributed to a strong recovery in that price, mainly as Ubisoft wisely warned investors that sales would dip (which they blamed on a new console generation) and has therefore been able to announce a better-than-expected performance. Stock price has continued to rise in 2014, leading up to the much anticipated Watch Dogs release – expected to cause a major fillip in Ubisoft sales. If those sales fail to materialise, Ubisoft may fall again.

Nintendo – Pokemon X&Y

In a supposedly bad year for the Japanese giant, Pokemon X&Y presented a strong success for Nintendo. It was the entry in the top five released as a platform exclusive (though The Last of Us, exclusive to Sony’s PS3, was in sixth place).

That success appears to have contributed to a positive upturn in Nintendo stock. In the doldrums at the beginning of October (X & Y was released October 12), it rose 26% higher by the end of November and almost 50% higher 3 months after release. Unfortunately, Wii U meant that didn’t last and Nintendo stock has since returned to pre-X&Y levels.

Electronic Arts – FIFA 14

Electronic Arts was the only publisher to release two top five games last year, and the difference between the stock market impact those games had yields some interesting conclusions. The reliable annual success of FIFA saw EA's share price increase up to its much-hyped release, before declining in the following months.

That declining value was punctuated by the release of Battlefield 4 a month after FIFA, which caused a brief rally in EA’s share price. Insightful investors could have used the successful launch of Battlefield for some short term profits, and all in all the continued strong return from EA’s suite of franchises (not to mention Titanfall) has contributed to good long term performance, with shares up over 60% year on year as of May 9^th.

Activision Blizzard – Call of Duty: Ghosts

Another company showing considerable growth, and another unsurprising entry in the top five – Activision once again scored a massive hit in 2013 with Call of Duty: Ghosts. That said, sales of the annual franchise were down on the previous entry – which Activision, like Ubisoft, blamed on the arrival of PS4 and Xbox One.

Like FIFA, strong yearly sales of Call of Duty games are pretty much expected by the industry, but the diminishing returns of this franchise entry has done little to hurt Activision’s value. Instead, a stock that has been growing off the back of good financials continued to do so – with reliable earners like World of Warcraft and new ones like Hearthstone leading to a positive outlook for the business.

Take-Two Interactive – GTA V

Breaking all sorts of entertainment records along the way, GTA V topped the highest selling game of 2013 charts by some margin. That’s after a considerable spell without notable success from Take-Two, with 2010’s Red Dead Redemption the last game to chart in the top ten.

The standout factor of GTA V’s success is the scarcity of releases in the franchise: the last entry in the GTA series was released in 2009. The isolated nature of GTA V’s success may have contributed to Take-Two’s  remarkable success on the market in 2013, where it ended up valued over 50% higher at the year’s end than the beginning.

Take-Two’s share price in the five months preceding and following GTAV’s launch. Based on IG’s CFD index pricing – find out more at www.ig.com/uk/spread-betting

Much of that growth occurred in the months preceding GTA’s release, as a huge marketing campaign fuelled a groundswell of anticipation. The release itself saw a spike in share price of just over a point in the following days, which reversed as its success encouraged traders to cash in profit. That would not have been a wise move, however, as the continued success of GTA has resulted in a steady rise that peaked in share prices over 100% higher than in January 2013 by March this year.

Perhaps unsurprisingly, the publishers topping the yearly release charts tend to show good growth (with the exception of Nintendo, a company with more on its plate than the others). As such, predicting which games will be big successes this year could lead to profitable investments. Major volatility in the stock can provide shorter term opportunity, but brings with it plenty of risk – which may be why it’s a path many traders fear to tread.

Written by one of the traders on IG's UK shares trading floor.

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