Our second focus in the latest issue of TWST is on Gaming & Leisure. Analyst Edward S. Williams of BMO Capital talked to us a little bit about this space, specifically the interactive entertainment area of it. His picks in this area are Gamestop (GME) and Activision Blizzard (NASDAQ: ATVI). Here’s why:

• Gamestop- “One of the reasons why we like GameStop, which is the retailer, is that they stand to benefit from the continued success of the Nintendo platform simply by selling the Nintendo product. In addition, they have a strong and vibrant used video game business that I imagine will experience some growth in the current economic environment as you get a more price-sensitive consumer. And then thirdly, they’ve made some strategic acquisitions, specifically at the end of last year, to move into the French market, which should dramatically increase their presence in the European market. Over time my guess is that the European market will become a material and significant contributor to the company’s top and bottom lines.”
• Activision Blizzard- “One of the key advantages that Activision Blizzard has is their heavy reliance on a product called World of Warcraft, which is a subscription-based game that has about 11.5 million people who play the game on a monthly basis. About 45% of those 11.5 million people are playing the game in the western markets, the North American and European markets, and they are paying somewhere around $15 or 15 euros a month to play the game. That game is a material contributor to the top and, more important, the operating income lines for Activision Blizzard. Besides World of Warcraft, they also rely heavily on the Call of Duty and Guitar Hero franchises, which have been tremendously successful of late and have helped to produce operating margins for Activision Blizzard that are in the mid-20% area, which is slightly higher than what we’ve seen historically from publishers in the category.”

For the complete Gaming & Leisure report, including a full interview with Mr. Williams, as well as a roundtable discussion of the space and more stock picks, click here.

This entry was posted on Wednesday, April 8th, 2009 at 4:11 pm and is filed under Consumer Stocks. You can follow any responses to this entry through the RSS 2.0 feed.