Top Video-Game Stocks for 2013


With the stock market spiking higher by 25%, it has been a great year for investors. Of course, individual stock performances varied widely around that broader average, and a few outsized winners really stood out from the rest. Today I'm taking a closer look at the top video-game stocks in 2013: Take-Two Interactive , Activision Blizzard , and GameStop . Each of these companies trounced the performance of the overall market:

ATVI Chart
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A grand year for Take-Two
For Take-Two, 2013 was all about a single breakout title: Grand Theft Auto V. Video-game publishing is a hit-driven business, and this developer scored one of the biggest hits of them all this year.

GTA V. Image source: Take-Two.

GTA V set sales records around the globe, including by becoming the fastest-selling entertainment release in history. It grossed more than $800 million in its first 24 hours of availability on its way to selling 29 million units in just six weeks.

That jaw-dropping performance helped Take-Two quadruple its revenue in the third quarter, to $1.27 billion. Profit rose to $2.49 a share, many multiples of the $0.11 it earned in the prior year.

After booking financial results like that, you might wonder why Take-Two's stock didn't jump even higher this year. The reason comes down to predictability: There's no Grand Theft Auto 6 on the company's release calendar anytime soon, and so next year Wall Street expects earnings to come crashing back down to earth. Until Take-Two can build more predictable sales, its stock is likely to be held back by the market.

Activision defends its title
Activision Blizzard, meanwhile, has turned in slightly worse results this year compared with 2012. Sales are down about 10%, and per-share profits have dipped to $0.33 a share, below the $0.40 it logged over the same time period last year.

Still, those results are impressive considering the major challenges that Activision warned investors about to begin the year. It's Skylanders franchise is up against direct competition for the first time, from Disney's Infinity title. The aging World of Warcraft title has been leaking subscribers in this age of free-to-play games. And Activision's Call of Duty: Ghosts launched to lukewarm reviews. Yet each of those tentpole franchises appears to be holding up well against the competition, putting Activision in a prime position to lead the industry again next year.

GameStop won't quit
But GameStop takes the honors as the top-performing video-game stock of 2013. The specialty retailer was one of 2012's "most improved," and it kept that momentum going into this year.

The stock's run kicked into high gear when GameStop dodged a bullet that threatened its entire trade-in business, as Microsoft and Sony introduced next-generation consoles that, contrary to some rumors, do allow for used game play. That left GameStop's lucrative business model intact, and it cleared the way for the retailer to benefit from all the pent-up demand that an eight-year break between console upgrades has created.

The results of that demand spike are already starting to hit the retailer's books. It saw sales jump by 20.5% last quarter, helping GameStop deliver what very few retailers could heading into the holiday season: suprisingly strong sales growth.

Foolish final thoughts
With video-game sales slipping for years, few investors wanted to leap into this industry at the start of 2013. But in retrospect, it wasn't hard to identify some promising candidates in this sector. They included the owner of one of gaming's biggest brands, the sales leader with three hit franchises, and the world's biggest video-game retailer.

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These three stocks stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

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Fool contributor Demitrios Kalogeropoulos owns shares of Walt Disney and Activision Blizzard. The Motley Fool recommends Activision Blizzard, Take-Two Interactive, and Walt Disney and owns shares of Activision Blizzard, GameStop, Microsoft, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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