Share Slump: Wall St Analysts on the Games Industry

The New York Times reports earlier today, in suitably florid language, that “while air has seeped steadily from the stock market, it has poured from the four major publicly traded game publishers.”

Since May 1, according to various Wall Street analysts, the top four publishers mentioned - Electronic Arts, Activision, THQ and Take-Two Interactive – “have lost a collective $6 billion in market capitalization, about a 25 percent drop, compared to declines of 8.3 percent for the Nasdaq and 4.2 percent for the Standard & Poor's 500-stock index.”

The drop is attributed to a growing realisation by investors that the games industry will recover from its current phase of transition at a much slower rate than was previously thought on Wall Street.

The NY Times quotes Justin Post, an industry analyst with Merrill Lynch, who says "There are more industry concerns than ever, and that's what you're seeing in the stock prices.”

Still, the longer term prospects for the industry, once the transition to the next generation has been made, are good. Post still has a ‘buy rating’ on Electronic Arts and Activision shares.

The article goes on to outline that since January 2006, “Wall Street analysts have dropped their estimates of the industry's total revenues for 2006 by 60 percent” according to Daniel Ernst, an analyst with Soleil-Hudson Square Research.

Ernst told the paper that “the most optimistic view is that by the end of this year, consumers will own 15 million consoles of the new generation — 12 million Xbox 360 consoles and the rest PlayStation 3 and Wii machines. There are about 150 million machines of the preceding generation.”

Summing up, Ernst did have some good news for investors in games: "If 2006 stinks, 2007 on a comparable basis is going to look pretty incredible."