Game analysts sound off on market crisis

Sebastian: "Investors are shooting first and asking questions later"; Pachter: "Worst I've seen," publishers have long road ahead to regain 2007-level share value.

by

At 4 p.m. EDT today, US stock markets closed, ending one of the most tumultuous weeks on record. Today, the Dow Jones Industrial Average rose and fell dramatically within a 1,000-point range, eventually ending the day at 8,451.19. The one-day 128-point, 1.5 percent drop capped the worst week in the index's history, which saw a 1,874-point, 18.2 percent decline in just seven days.

Since the beginning of the year, the DJIA, made up of 30 "blue-chip" firms such as ExxonMobil and IBM, is down a staggering 40 percent. The NASDAQ composite is faring even worse, down 41.3 percent for the year. Most game publishers are listed on the NASDAQ, and like the rest of the tech-heavy market, they have been taking their lumps in recent weeks. The drastic declines have torpedoed the long-held perception that the game industry is recession-proof--or at least recession-resistant.

"Clearly investors are shooting first and asking questions later," said Colin Sebastian, senior vice president of Equity Research at Lazard Capital Markets. "The broader market sell-off isn't leaving any sector untouched, and is certainly impacting the video game sector, given its exposure to fourth-quarter consumer spending."

But are game publishers faring any worse than the rest of the market? "The declines are mostly market-driven, with broad indexes off around 40-plus percent from their October 2007 highs," explained Michael Pachter, top game-industry analyst for Wedbush Morgan. "That means that the average stock is down 40 percent over the last year."

Pachter explained that though games have been touted as cost-effective entertainment to penny-pinching consumers on "staycations," they're still a nonessential expense. "The market is down for a bunch of reasons, but the one that is most relevant to the game publishers is the waning confidence in consumer demand. This means that companies making discretionary consumer products are probably down more than 40 percent, while companies making consumer staples (soup or toothpaste) are probably down less than 40 percent."

How are game stocks faring? According to GameSpot's own research, THQ has lost 68 percent of its value in the past year, worse than the grim 40 percent average from October 2007. Pachter blames THQ's steeper decline on a prolonged hangover from last holiday season, when the once-cash-flush publisher's earnings were far below expectations.

Also worse than average is Electronic Arts, down 54 percent due to disappointing earnings and revised guidance. Take-Two's 29 percent loss is less than the 40 percent Oct. 2007-Oct. 2008 loss benchmark, thanks to "Grand Theft Auto [sales] and the potential for EA to come back," said Pachter, referencing the publisher's now-scrapped takeover bid. However, the company's share price is now half the $26-per-share offer EA made back in February.

For the most part, Sebastian concurred with his colleague, but also offered another factor. "We believe some retailers are exercising a little more caution in their up-front buying of video games and other products, which is understandable given what's occurred over the past couple of weeks," he explained. "However, at this point, the industry appears to remain fairly stable--in other words, resilient but not immune from the weaker economy."

Why is this man smiling? Because this picture is two years old.

That said, Pachter believes that one publisher will be extra-resilient. Unsurprisingly, that company is Activision-Blizzard, which the analyst is still bullish on despite its 28 percent stock slide during the past month.

"They are a completely different company with the Vivendi Games merger, so their value this year doesn't compare with their value last year," he explained. "I think that the market will learn to appreciate that World of Warcraft is like crack cocaine, and probably benefits from a recession." The affable analyst went on to deadpan that, "unemployed subscribers can play 100 hours a week--a phenomenal value."

Gallows humor aside, Pachter doesn't believe that game publishers' share prices will be bouncing back anytime soon. "These stocks will remain depressed as long as the market is depressed," he said. "The question is what happens if games are recession-resistant this holiday. I think that they will be. My guess is that the stocks will rally, then jitters will continue and keep the stocks from climbing much higher than slightly above the market as a whole. Thus, we probably won't see them get back to their October 2007 values for a while."

How long is "a while"? "It is impossible to know how low the market can go before recovery," he lamented. "The economic situation is unprecedented, and clearly the worst I have seen in my lifetime. This is serious stuff, and will take years to sort out, and we may not yet be near the bottom."

Top photo Credit: CBS/AP - Richard Drew

Discussion

138 comments
Jazz_Fan
Jazz_Fan

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Jazz_Fan
Jazz_Fan

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Jazz_Fan
Jazz_Fan

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Jazz_Fan
Jazz_Fan

[This message was deleted at the request of the original poster]

Jazz_Fan
Jazz_Fan

[This message was deleted at the request of the original poster]

On3ShotOneKill
On3ShotOneKill

I sure hope the industry grows, but if the clothing industry is reporting lower than expected losses(which it is) then the gaming industry is just as vunerable. Look at what the government is doing. We are in debt(the largest in our history) and the FED creates money out of thin air and injects it into the banking system. We cannot realistically afford to do that!!! They are just asking for trouble. Anyway, all I wanted to really say is that you guys are being way too optumistic about the gaming industry. Saying ANYTHING is "invunerable" or "would never happen" is a fools game. Every human on Earth needs to be more open minded and except possibilities, whether we like them or not. Last year people were saying the ecomnomy would be good, and no one really payed attention to world events, reports, etc. I guess this is the price the common people pay if they remain ignorant about history, other people, and the very world they live in(not tring to say you guys are dumb or anything like that at all). Let's just hope the economy can hold on until Fallout 3 comes :) As long as I Get to play through at least the first area, the world could implode for all I care.

tudyniuz
tudyniuz

Why is this man smiling? Because this picture is two years old. :lol: :lol: :lol:

sieg6529
sieg6529

@darkride66: you're dead on; this is the best time to buy. Especially with the holidays coming up. I expect the next few weeks to be rough, but we'll recover. The thing to remember is that stocks are exactly like gambling; don't bet more than you can afford to lose.

totaleklypse
totaleklypse

and another little thought.. doesnt it seem just like a way for white collar jerks to gamble legally? lol.. i dunno i am just so sickened by the whole concept of big buisinesses. i work for one of em and honestly i will feel great if they go flop. when the white collars lose power who do you think will gain it.. us the workers. seems to me the governemnet has failed us and according to our constitution we are to rectify it. WE THE PEOPLE the 4th branch of government. and i will end it on a quote from Thomas Jefferson =) "What country before ever existed a century & half without a rebellion? & what country can preserve it's liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to facts, pardon & pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time with the blood of patriots & tyrants. It is it's natural manure." We the people, we are the true patriots.

totaleklypse
totaleklypse

just a thought i guess. who even made up this whole stock system? it never made a whole lot of sense to me, just a way to pump money into buisinesses that often dont deserve it. wouldnt it be better to just run a company and split profits among owners and the employees? seems like that would be a better wealth distribution but just a thought. hell look at ZAP motor company, they were a prime example of "shareholders get screwed". i understand the concept of venture capitalists putting money into new ideas but why then take the companies and break them into shares. just seems so stupid.

darkride66
darkride66

jmartin1016 said "Buy stock now?" You'd still be in for a rough ride short term but stock valuations haven't looked this goods since the early 90's.

MinerAvatar
MinerAvatar

Off topic: Some people have contacted me asking about several things in my post, so for them, and anyone intrested in the financial state we are in now, there is a documentary thats all about the moves in the early 1900's I spoke of, our Federal Reserve, and the IRS. This is something all Americans should see and how it lead us to here. This movie was made in 2006 but warned about what is going on right now. So please, I encourage all of you to watch this free documentary from Aaron Russo "From Freedom To Fasciam". This movie explaines so many things very clearly, and includes several apearances form US Congressmen including Ron Paul. This movie is a great place to start your own education on what happens behind the publics back. I hope it can at least get people talking and asking questions of our elected officials. You can check it out here: http://www.freedomtofascism.com/. Or you can Google it and watch for free also. Decide for yourself whats real, that is what America is all about after all, Freedom and choice. Ok (sounds of getting off soap box) I'm done now! :)

Kelemhuma
Kelemhuma

Let me start by saying. All of you dont begin to understand how corrupt our government is. The whole 700 billion dollar bailout package. Has nothing usefull in the bill look at fine print. Pure garbage This is just one exsample it gives money to oil companys to drill for oil when they already turning record breaking profits. This bill is basically a another way for the government to filter money in to greedy pockets. Same reason why we dont want to pull out of Iraq Halliburton is reciveing all royalties with construction and defending the oil. That's right they making a billions guarding the oil! Not to mention The deficit we running up with federal reserve. All money going in to private company. Every dollar they print devalues the dollar with no gold standard. You guys want to see the real truth? Go to www.Zeitgeistmovie.com no downloading movie steams right from site. Dont think link is broken when you click link there is no picture for first four minutes twenty seconds. This is a movie every American needs to watch. The first chapter is abour religion second chapter is about 911 third chapter is about American economy. Look this was all planned. Look at folowing story below was printed in NY Times in 1999. All these game companys are going to to feel the pain of this man made disaster. In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.. Fannie Mae officials say they hope to make it a nationwide program by next spring. Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans. ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.'' Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market. In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped. Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

MinerAvatar
MinerAvatar

On topic, I promise. I think the Video game industry will continue to grow not shrink. In hard times people always flock to entertainment to forget about everyday problems, I bet the movie industry will flurish because of this as well. How this affects the companys bottom lines is yet to be seen however so we might see a slower release schedule with company's taking less risk and going for "surfire" hits, so lots of "whatever game 3".

Enjorren
Enjorren

I think that the problem is a lot less complicated then these so called analysts believe and it's probably not so obvious to them since I doubt any of them are actual gamers. Games are more expensive now then they used to be. That, combined with the fact that there are very few games actually worth spending the money on really makes it easy to figure out why no one is buying games like they used to. Thankfully most people can download a demo of the game before it comes out so they don't end up wasting their money and feeling disappointed. To put it in perspective I own a PS3 but the only games I own for it are MGS4, GTAIV, and the force unleashed because I'm a star wars fan. It's not because I'm cheap, it's because there isn't anything else available worth dropping 60 bucks on except maybe COD. Obviously we all have different tastes as far as games go but I don't think I am alone in what I'm saying. Game developers need to start making games worth buying and not just hyping up the game during it's development only to deliver a product that falls short of everyone's expectations.

mikethemonkey
mikethemonkey

Dear condemned100, You are crazy! Signed, Mikethemonkey

Vrygar777
Vrygar777

I agree with mad krips, religion, ideology, politics, race, color, none of that has anything to do with the question at hand. Just about every comment *points at condemned100* have been about silly ideals and "truths." This is a GAMING website, not a preaching forum.

condemned100
condemned100

I'm deeply sorry I know this is not the place to share this. But please try to understand I don't have a Myspace account, a Facebook account, a Youtube account, No account just e-mail but it's Private. I Promise gamers and Moderators I'll stop now. Enough said.

condemned100
condemned100

I think I got it Earth's Calmness Is an Illusion for other Universes or Planets that are Not calm and Therefore are Aggressive. Months before my Grandma Passed away she was sitting on a chair In the kitchen and spoke to me she told me that Im Stubborn.

kozzy1234
kozzy1234

Condemned stop your nonsense, its annoying.

condemned100
condemned100

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wilso326
wilso326

condemned, can you please stop preaching? Nobody cares. kthxbai

mr111111
mr111111

condemnded100 i want you to know that not many people share your mindset and that you should rethink your logic

condemned100
condemned100

I'm starting to believe this entire economy crisis is false and not real because only one guy bill o reilly is mad about the global economic crisis. Not even President Bush, Obama, or Mccain show anger about this global economy crisis that people are hurting and lost everything. Enough said.

condemned100
condemned100

One final note God is Invisible and so are us Mortals. For in the universe and space our body doesn't exsist we don't exsist only our Atoms and Protons and Neutrons. Without Earth's Atmosphere, Magnetic Field, and Ozone-Layer we wouldn't be alive right now we owe the Gods of Nature alot of Love. Why does Nature have to be so Calm and not Aggressive.? Maybe just maybe Our Human Heart is the Gods of Nature's Heart.

ftjx
ftjx

these comments are crazy! CRAZYYYYYYY!!!!!

endocrine
endocrine

Stocks and consumer demand are not always correlated. You had many stocks that were overpriced that helped lead to this crash. Now you have many stocks that are way underpriced that will help lead to a rebound. Game sales could have the best year ever or worst year ever and I think it will have minimal impact on what their stocks do. Every major business news program was wrong about what the "bailout" would do to the stock market, so I have no faith in what they say holiday sales and consumer demand will do to the stock market.

GatsuBlackSword
GatsuBlackSword

This is going to affect our community the most. Sales are based on this industry and when sales numbers start to drop things will get bad. Look at the devloper siliconknights just laid off 26 people and they closed Ensemble Studios. Things will get bad before they get better that's for sure!

PayneKiller
PayneKiller

wtf does obama, mccain, palin, biden, religion, race or console choice have to do with this article? i press Ctrl+F and search for any of those names and the only place i see it is in the comments. Why does every piece of news have to turn into one side vs the other every time? I am so turned off from reading the comments half the time because they usually have nothing to do with what was being addressed. Sure ya the economy needs to be fixed and it will be on whoever is elected's shoulders, but please save that argument for another place.

condemned100
condemned100

This is what I wrote on my Wide-Ruled Notepad. We are all Connected through our Horoscopes being in the sky and Space. Enough said.

SidV101
SidV101

theres also the matter of a lot of people who play games being kids who are always going to get games for Christmas.

condemned100
condemned100

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Great_Ragnarok
Great_Ragnarok

watch the zeitgiest! Its a conspiracy theory so you should only watch it for the questions it asks. part three is what really got my mind. not many people question the economic system imposed on people but we all should. because its full of flaws!

football_legend
football_legend

lol, it will rocket starting next week with Dead Space!!

MinerAvatar
MinerAvatar

I can't seem to get the link to post correctly to Wikipedia, but just type in Fairness of Russian Presidential Elections 2008. and you will find several articles and what not about them. PS I love freedom and democrocy thats why I hope people will start to see what is really going on so we can protect it.

MinerAvatar
MinerAvatar

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MinerAvatar
MinerAvatar

First no government would lie to us right? Parrot of Adun please read this: http://en.wikipedia.org/wiki/Fairness_of_Russian_presidential_election,_2008 Maybe you forgot about the fact that Russia's "President" just invaded a counrty with out real clause. Thats sure sounds simular to something? I am sure it had nothing to do with the oil pipeline running in Georgia, lust like Iraq was about WMD's. I know China is a soialist state that can monitor there people without warants or just cause, sure sounds like something to me. I bet you think we really need it right, why shouldn't we just keep giving up our rights, and our money, so they can bail out their friends. Across the world, as we type here, central banks are useing this as a cover to get incorperated into their governments by changing theie constitutions. (Why, to be like our fedral reserve act, passed in the 1920's, money is the real power), ever see that in the news? It is there if you look really look hard to find it buried in the back pages and late at night. The federal reserve is printing money we don't have to devalue our dollar because our government, controlled by Democrates and Republicans, allows this to happen. You really believe that some jerk at AGI that pocketed over 400 million from the investments YOU made into HIS company deserves a bail out don't you. You do believe it right, just because they told you to. They (the media owned by these very corperations) say its for the best. The real news is hard to find, you will not see it on TV in prime time, or on any major news channel. To every single one of the congressman and senators that voted against this, they are the real hero's. Not the current two canidates, and not the ones that allowed themselves to be bought out. There is a reason it failed the first time. This is all recent history, and you just want to believe what they tell you to because the truth is very, very frightening. Be glad that as of today you still have that right to believe in anything you want. I believe we, as Americans, have been had.

parrot_of_adun
parrot_of_adun

"How is this any different that China or Russia with only one canidate given any press?" -Well, first of all, China is a single-party socialist state, their political structure doesn't work that way... Also, Russia has more safeguards against corruption than we do (guess why we never hear about our own corrupt), they're actually better off. "This crisis is indeed the worst since 1929" -...what about Black freakin' Monday??

JimmyCos
JimmyCos

funny thing, im playing Vampire the masquerade: bloodlines and nines rodriguez (an anarch) comments about the masquerade and the great depression; "the rich (camarilla)people didn't suffer, only the poor innocent people"

MinerAvatar
MinerAvatar

If your really upset at our leaders, send a real message, vote for Nader or any other third party. Get rid of the people that are the problem, the Democrats and the Republicans, there is NO differance between the two anymore. For anyone that says your throwing your vote away, they are the ones keeping this problem alive. They are the blind fools that don't question why anything is the way it is, they just accept it, even if it is clearly wrong. Check out our history and you will find that since the 1900's banks and corperations have bought our govenment for there own goals. To take the USA back from corperations, and special intrest groups, you have to vote for people that are not in bed with them. We never hear about the other canidates for a reason, they want to take America back from them, they aren't part of the good old boy network, like the two we get to see in the debates now. How is this any different that China or Russia with only one canidate given any press? Why do you think they (the press) cover Miss Spears and not any of the third party people? I know this is a Video game sight so I won't go on, but people we better wake up and see what is really going on, its much larger than most people think, and the media will not cover it. Keep in mind after all they are all (every one of them) owned by the very coperations that really are in charge in the USA.

CJFreeze
CJFreeze

Oh and might I mention the average teenager spends 3 times as much on material needs then parents/grown-ups where as mature investors put their money in the companies that make the things everyone is buying. The video game industry crashed in 1984 but was largely due to the fact no one really knew anything about it. As long as there are kids looking to play a new game there will always be people making them.

CJFreeze
CJFreeze

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On3ShotOneKill
On3ShotOneKill

Sigh.... This is ONLY going to get worse people(as much as I hate to say it). Way spend 5,000 A second in Iraq, have a national debt that has become so big, it can't fit on the National Debt Clock, the government is DIRECTLY taking control of assets and banks, etc. This list goes on and on. Not only that, but GM could possibly become bankrupt and if that happens, the U.S. economy and World economy will take a HUGE hit. This crisis is more than credit or morgages. It is effecting every sector. On top of this, the FED is basically creating money out of NOWHERE, in order to help liquidize assets and unfreeze the markets. This will only help to kill the dollar in the future, since it will become over-inflated and worthless. Ron paul knew this was coming back in summer 07' and nobody wanted to listen to "radicals" like him. Truth is, no one TRUELY knows how to fix this spreading problem, just like in 1929. I mean, Iceland went bankrupt for Christ's sake. Because of Globalization, I fear this may be worse than 1929-1932.

Unholy_Terror
Unholy_Terror

@BearishSun. What are you talking about? Just because you and your family aren't being affected directly doesn't mean other people aren't being directly effected. And a depression does not have to be a people can't afford to eat time, it's an economic term. So learn some stuff before you go on a rant

forhekset
forhekset

This crap is affecting everyone in alot of countries, so it can't be that bad. Somewhere it has to even out.

LindBergh2007
LindBergh2007

chibi-acer you so right. Here's my prediction: the video game industry is about to crash like it did in 1984. But it will recover. Oh and out of everyone here it seems like only Amir has common sense.

Kratos-PS3
Kratos-PS3

I hope the government is quick enough to fix this. I don't want to see my country (USA) go down like this.

BearishSun
BearishSun

I cant understand why do you blame Bush or his administration for your economic downfall? One man, or few dozen men for that matter can't really be responsible for everything happening now, and electing a new government just won't change it. It would have happened anyway. I live in a east European country and I still haven't seen any big problems here that concern me directly, other than the media bullsh*t. And USA and most of Europe is now coming to a depression, and that would suspect my country is as well. But until I see some real issues for myself/my family I wont f*cking complain. So stop saying "I hope this isn't another great depression" or what not, because, first you don't even know how the last one was and unless you can see some actual depression yourself(like people start dying from hunger in your country of some other sick sh*t), shut your mouth. And media feeds you bullsh*t like this thinking game industry will get worse...doubt it.