GameStop and Xbox Win a Level - but Not the Game

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Call of Duty : Advanced  Warfare
JBLivin/Flickr"Call of Duty: Advanced Warfare" was the world's best-selling video game in 2014.
Last week was a good one for owners of some video game stocks. Activision Blizzard (ATVI) moved sharply higher on Friday after it was revealed that "Call of Duty: Advanced Warfare" was the world's best-selling video game in 2014. GameStop (GME) shares soared nearly 13 percent higher in an otherwise rough trading week after it announced encouraging holiday sales. Microsoft (MSFT) turned heads after Xbox One was tapped by one authoritative source as the best-selling video game console in the country for December.

Activision Blizzard should continue to serve investors well. Its combat game franchise has now been the industry's top dog for six years in a row. It also surprised the market by announcing that "Skylanders" topped Disney's (DIS) "Infinity" in global sales by 30 percent in 2014. It was often assumed that Disney introducing a "Skylanders"-like platform with Disney characters would sink Activision Blizzard's property, but it seems as if "Skylanders" is more than holding up on its own.

Activision Blizzard is in a good place as the world's largest video game developer and publisher, and that should continue to be the case in the future. Console sales remain strong and digital distribution of software will open up new opportunities for Activision Blizzard to become even more profitable. However, that same kind of rosy prognosis doesn't necessarily hold true for last week's other two winners.

Yielding to GameStop

GameStop moved nicely higher after announcing preliminary results for the holiday season. Total global sales may have declined, with total comparable sales declining 3.1 percent during the nine-week shopping period, but it's really a tale of two months.

Comparable-store sales slipped 12 percent in November, but that wasn't a surprise. Microsoft's Xbox One and Sony's (SNE) PS4 hit the market in mid-November a year earlier, and sales soared as early adopters lined up to be among the first to own the next-generation consoles.

Thankfully for GameStop, comparable-store sales in December rose 4.4 percent. This was enough to lead the small-box specialty retailer to update its guidance for the quarter that concludes at the end of this month. Its new forecast implies that January may also be a slightly positive month.

The market seems to believe that this is a turnaround, but it's OK to be skeptical. After all, we're comparing this December and January to the prior year, when PS4 and Xbox One systems were scarce and there wasn't as much software in support of the new platforms as there is now. GameStop is going to have to keep this up if the turnaround is real.

Xbox Marks the Spot

The Xbox One revival may also be short lived. It's not a coincidence that the Xbox One overtook the PS4 as soon as it slashed its price to $349. The two-month holiday promo ended last month, but after just two weeks of life at $399 to kick off 2015, Microsoft decided to go back to the $349 promotional price.

Sales must have been pretty bad at $399 for Microsoft to retreat so quickly to $349, crushing any kind of profit margin that the console may have had when it initially hit the market 14 months ago at $499.

In the past, video game consoles were able to make up price cuts with higher royalties from software sales, but folks are using consoles for more than playing games these days. They're streaming video and browsing the Web, and that won't necessarily make the console makers any wealthier. In short, it isn't easy to be on top of the console hill these days.

Microsoft and GameStop may have taken baby steps up this holiday shopping season, but it's going to take a lot more than that to win the game.

Motley Fool contributor Rick Munarriz owns shares of Walt Disney. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard, GameStop, Microsoft and Walt Disney. Try any of our Foolish newsletter services free for 30 days. Want to make 2015 a winning investing year? Check out The Motley Fool's one great stock to buy for 2015 and beyond.
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