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The Day The Music Died

by AP on February 10, 2011

NEW YORK — These days, guns are more popular than guitars, at least when it comes to video games. The company behind “Guitar Hero” said Wednesday that it is pulling the plug on one of the most influential video game titles of the new century. Activision Blizzard Inc., which also produces the “Call of Duty” series, is ending the “Guitar Hero” franchise after a run of more than five years. The move follows Viacom Inc.’s decision in November to sell its money-losing unit behind the “Rock Band” video games. Harmonix was sold to an investment firm for an undisclosed sum. Harmonix, incidentally, was behind the first “Guitar Hero” game. Game industry analysts have long lamented the “weakness in the music genre,” as they call it – that is, the inability of game makers to drum up demand for the products after an initial surge in popularity in the mid-2000s. Music games are often more expensive than your typical shoot-’em-up game because they require guitars, microphones and other musical equipment. While extra songs can be purchased for download, this hasn’t been enough to keep the games profitable. Activision’s shares tumbled after the announcement, but investors appear more concerned with the company’s disappointing revenue forecast than the demise of the rocker game. As far as investors go, discontinuing an unprofitable product isn’t the end of the world, even if “Guitar Hero” fans disagree. “In retrospect it was a $3 billion or more business that everybody needed to buy, so they did, but they only needed to buy it once,” said Wedbush Morgan analyst Michael Pachter. “It’s much like ‘Wii Fit.’ Once you have it, you don’t need to buy another one.” “Guitar Hero” was iconic and often praised for getting a generation weaned on video games into music. But its end after a mere half a decade is a big contrast to other influential video game franchises, such as the 25-year-old Mario series from Nintendo. “Call of Duty” first launched in 2003, two years before “Guitar Hero.” In a conference call, Activision said its restructuring will mean the loss of about 500 jobs in its Activision Publishing business, which has about 7,000 employees. But the company’s overall work force numbers are not going to change much because it is hiring people elsewhere. Activision did better than expected in the fourth quarter, which ended in December, but that already was anticipated. After all, it launched “Call of Duty: Black Ops” in November. That game, which is mostly set during the Vietnam War, made $1 billion after just six weeks in stores. Its latest “World of Warcraft” game has also been doing well. Bobby Kotick, Activision’s CEO, said the company’s big franchises “have larger audience bases than ever before and we continue to see significantly enhanced user activity and engagement for our expanding online communities.” Revenue from so-called “digital channels” – that is, downloads, subscriptions and extra game content sold online – now accounts for 30 percent of the company’s total revenue. Activision said Wednesday it lost $233 million, or 20 cents per share, in the latest quarter, compared with a loss of $286 million, or 23 cents per share, in the same period a year earlier. Net revenue fell to $1.43 billion from $1.56 billion. Its adjusted earnings of 53 cents per share were better than last year’s 49 cents and beat analysts’ expectations of 51 cents, according to FactSet. Revenue that’s been adjusted to account for games with online components was $2.55 billion, up slightly from $2.50 billion a year earlier and above analysts’ $2.25 billion forecast. For the current quarter, which ends in March, Activision forecast adjusted earnings of 7 cents per share, and adjusted revenue of $640 million. Analysts are looking for earnings of 10 cents per share on higher revenue of $771 million. Activision Blizzard also said its board authorized a new $1.5 billion stock buyback plan. And it declared an annual dividend of 16.5 cents, an increase of 10 percent from the dividend it issued in February 2010, its first ever. Shares of the Santa Monica, Calif.-based company, which is majority-owned by France’s Vivendi SA, tumbled 87 cents, or 7.4 percent, to $10.82 in after-hours trading. The stock had closed the regular session down 19 cents at $11.69.

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The Day The Music Died

Steven Bulwa: How Much Can a Business Grow? The Limitations of a Finite Economy

by on December 22, 2010

While I congratulate Mark Zuckerberg on being named Time ‘s person of the year it makes me wonder whether we have taken our social networking euphoria to bubble extremes. The stock market is salivating over a Facebook IPO and from what I read the current valuation is somewhere north of $43 billion . Speculation is that Facebook’s current year revenues are around $2 billion . Google’s (GOOG) market valuation is almost five times that at $190 billion and current year revenue is about $22 billion . These two Internet behemoths sport a combined market valuation of $230 billion on $23 billion in revenue. There have been times in history when the U.S. stock market traded at a Price to Earnings below 10, less than these companies’ combined Price to Sales. That is a rather shocking comparison. Unreal Expectations Last week, Wedbush Morgan analyst Lou Kerner raised his rating on Google to Outperform from Neutral and set a $750/share price target for the company’s shares , saying: We are raising our rating and price target on Google based on our belief that mobile and social secular trends are accelerating the growth of time spent online and the growth of global searches. Coupled with the increasing global domination of Android, strong moves in local, rapid market share gains by the Chrome browser, and the potential of Chrome OS, we believe Google is remarkably well positioned to benefit from the major secular trend of our times — the digitization of human life. The problem with this thesis is that even as we “digitize” our lives, the population’s consumption patterns remain finite. Growth is constrained by the absolute spending power of businesses and consumers. Even if the form of consumption shifts there are still limits on the value attainable. While the market gets creative with new ways to justify higher valuations, remember “price per click” from the first internet bubble, as a company’s size increases, growth becomes more difficult. In a recent blog post, author and former venture capitalist Peter Sims talks about the challenges Google faces not to suffer the same fate as every other dominant tech company before it : The company has run out of easy growth opportunities and must now find big chunks of new revenue. With the core search business maturing, Google increasingly seems to increasingly feel the need to make some “big bets.” That is a problem that maturing companies face that CEOs call “the tyranny of large numbers.” Great Companies/Bad Stocks There is no doubt both Google and Facebook are fantastic and wildly innovative companies that have changed consumers’ lives and consumption patterns. What they have not done is changed the rules of investing or altered the limitations posed by a finite economy. Both companies carry massive and historically unprecedented valuations only witnessed in previous stock market bubbles. During the internet bubble of 2000, InfoSpace (INSP) stock traded for $1300, it now fetches $8/share. So while we take a moment to toast Zuckerberg’s accomplishments, I wonder if it marks the top of the current iteration of the Internet stock bubble.

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Steven Bulwa: How Much Can a Business Grow? The Limitations of a Finite Economy

Electronic Arts Falls as Game Maker’s Full-Year Forecast Trails Estimates

February 8, 2010

By Adam Satariano Feb. 8 (Bloomberg) — Electronic Arts Inc. , the world’s second-largest video-game publisher, tumbled in extended trading after its full-year forecast trailed some analysts’ estimates. Fiscal 2011 profit, excluding some items, will be 50 cents a share to 70 cents a share, the Redwood City, California-based company said today in a statement. That’s less than the $1 a share projection of Michael Pachter , an analyst at Wedbush Morgan Securities. Sales will be $3.5 billion to $3.7 billion, missing Pachter’s $4.5 billion estimate. The maker of “Madden NFL,” which has cut more than 2,500 jobs since 2008, missed its last two annual profit targets after disappointing holiday sales. Chief Executive Officer John Riccitiello aims to boost profit by releasing fewer titles, cutting costs and expanding online and mobile offerings. Electronic Arts fell $1.33, or 7.6 percent, to $16.16 at 4:34 p.m. after the announcement. The shares, which gained 11 percent last year, rose 23 cents to $17.49 in regular Nasdaq Stock Market trading. The company reported its third-quarter net loss narrowed to $82 million, or 25 cents a share, from a loss of $641 million, or $2 a share, a year earlier. Excluding some items, profit was 33 cents, compared with the 31-cent estimate of 23 analysts surveyed by Bloomberg. Sales fell 23 percent to $1.3 billion. Riccitiello said last month that fiscal 2010 earnings would be lower than expected because of weak holiday sales . The company expects to have a fourth-quarter profit of 2 cents to 6 cents a share after releasing new games including “Mass Effect 2.” Activision Blizzard Inc. , the world’s largest video-game publisher, reports fourth-quarter results on Feb. 10. (Electronic Arts will hold a conference call at 5 p.m. New York time. To listen, go to http://investor.ea.com .) To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net .

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Intel Sales, Profit Forecasts Top Analysts’ Estimates as PC Market Revives

October 13, 2009

By Ian King Oct. 13 (Bloomberg) — Intel Corp. , the world’s biggest chipmaker, forecast sales and profitability that topped estimates, indicating that computer demand is returning to pre- recession levels. The shares jumped 6.4 percent. For the fourth quarter, Intel forecast sales of $9.7 billion to $10.5 billion, compared with the $9.5 billion average estimate in a Bloomberg survey . Third-quarter net income dropped to $1.86 billion, or 33 cents a share, the company said today in a statement. Revenue fell 8.1 percent to $9.39 billion. Today’s numbers were all the more impressive because Intel raised its outlook two months ago, said Patrick Wang , an analyst at Wedbush Morgan Securities in New York. Chief Executive Officer Paul Otellini expects the PC market to grow this year, defying analysts’ predictions. “They had a phenomenal quarter once again,” said Wang, who expects the shares to outperform their peers. “They beat expectations on revenue and from a gross-margin standpoint.” Intel rose $1.31 to $21.80 in extended trading. The shares, up 40 percent this year, closed at $20.49 on the Nasdaq Stock Market. Net income was down 7.8 percent from $2.01 billion, or 35 cents a share, in the year-earlier period. In August, Intel said that third-quarter sales would be as much as $9.2 billion, compared with an August prediction of up to $8.9 billion. Profit Margin Gross margin , the percentage of sales remaining after the costs of production, was 58 percent in the third quarter. That compared with Intel’s prediction of about 53 percent. This quarter, it will widen to about 62 percent, the company said. Intel’s report kicked off two weeks of earnings by big U.S. technology companies, including International Business Machines Corp. , Google Inc. and Microsoft Corp. The use of Intel’s chips in everything from laptops to supercomputers makes its sales a barometer of industry demand. “Everyone has been pretty surprised at the strength of technology throughout the downturn,” said Kim Caughey , an analyst at Pittsburgh-based Fort Pitt Capital Group Inc., which owns about $1 million worth of Intel shares. “Whether or not we’re still in a recession, companies and retailers and customers alike are very careful about where they’re spending their money. Clearly they’re still buying computers and all things electronic.” New Windows Microsoft is introducing a new Windows operating system this month — an event that typically triggers a surge in PC orders. The question now is how long that boost will last. Orders for PC parts are ebbing, indicating that Intel’s sales may slow again, said Daniel Berenbaum , an analyst at Auriga USA in New York. PC makers have accumulated inventory, which may curb their demand for Intel’s chips later, he wrote in a report. Gartner Inc. , a research firm in Stamford, Connecticut, expects the PC market to grow in the fourth quarter. For the full year, it predicts a decline in global shipments of 2 percent to 285 million. China’s stimulus program may be helping the market by giving shoppers money to spend on PCs, said Edwin Mok , an analyst for Needham & Co. in San Francisco. He recommends buying Intel shares, which he doesn’t own. “The PC has been one of the bright spots this year,” Mok said. To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

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Bridgepoint Education Drops as Audit May Find Noncompliance With Aid Rules

September 4, 2009

By John Lauerman Sept. 4 (Bloomberg) — Bridgepoint Education Inc., a for- profit provider of college classes, fell the most in almost five months in New York trading after saying a government audit may assert the company misused federal student aid. The U.S. Department of Education’s Office of Inspector General will issue findings on Bridgepoint’s compliance with government regulations at its Ashford University campus in the next 30 days, the San Diego-based company said today in a statement. Ashford University got 87 percent of its revenue from federal financial aid in 2008, according to a company filing. The Inspector General’s findings may cover Bridgepoint’s compensation of enrollment officers; returns and disbursement of U.S. student aid funds; and documentation of students’ leaves of absence, the company said. Investors may be concerned that the agency’s charges will lead to fines or settlement costs, said Ariel Sokol , an analyst with Wedbush Morgan Securities in New York. “No one knows what the potential issues of noncompliance are,” said Sokol, who recommends investors buy the shares and doesn’t own them, in a telephone interview. “Without knowing what the specific allegations are, how can you quantify it?” Bridgepoint fell $3.10, or 17 percent, to $15.13 at 1:26 p.m. in New York Stock Exchange composite trading after dropping as low as $13.76. Shelley Pfaendler , a spokeswoman for Bridgepoint at KCSA Strategic Communications in New York, declined to comment. Ashford University Bridgepoint bought the Franciscan University of the Prairies in Clinton, Iowa, in March 2005, renaming it Ashford University, according to a company filing. Bridgepoint, which also owns the University of the Rockies, in Colorado Springs, Colorado, has about 46,000 students, most of whom take courses through the Internet. The inspector general cited Bridgepoint’s compensation of enrollment officers, which has become an issue at other for- profit education providers, including Grand Canyon Education Inc., based in Phoenix, and Apollo Group Inc., also of Phoenix. In 1992, the government banned paying enrollment officers on the basis of the number of students they recruited. President George W. Bush’s administration adopted regulations in 2002 that allowed a portion of enrollment-officer pay to be based on the number of students recruited. Grand Canyon said on Sept. 2 it was in discussions to settle government charges of violating the enrollment law. Apollo Group, the parent company of the University of Phoenix, paid $9.8 million to settle compliance charges in 2004 and faces a lawsuit in federal court over incentive compensation, according to company filings. The University of Phoenix is the largest private university in the U.S., with more than 400,000 students, most of them taking online courses. Grand Canyon fell 84 cents, or 4.8 percent, to $16.78 in Nasdaq Stock Market composite trading. Apollo Group, based in Phoenix, fell 22 cents, or less than 1 percent, to $65.66. To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net .

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Starwood Profit May Top Analysts’ Forecast by 59% Tomorrow, History Shows

July 22, 2009

By Jeff Kearns July 22 (Bloomberg) — Starwood Hotels & Resorts Worldwide Inc.’s history of beating its own forecasts indicates the third- largest U.S. lodging company may report 59 percent more second- quarter profit tomorrow than analysts expect. Starwood has beaten its profit forecast and analysts’ estimates for 13 straight quarters, according to data compiled by Bloomberg. Given the degree by which the company beat its own forecasts, Starwood will probably post 15 cents to 40 cents a share in second-quarter earnings, with the midpoint at 27 cents, according to Bloomberg’s mathematical model.

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