The greatest challenge for the company’s new PlayStation 4 and Xbox (which Microsoft is expected to be working on) is offering a similar level of performance leap with new generation consoles. There would be certain other changes, which may include the ability to take part in streaming game content that is not fixed to a plastic disc. According to the Wall Street Journal, the new PlayStation would also offer games that are streamed over the Internet, as Sony would make use of its previous year’s acquisition of Gaikai, a cloud gaming firm.
The support of game publishers such as Electronic Arts inc. (NASDAQ:EA), Activision Blizzard, Inc. (NASDAQ:ATVI), Take-Two Interactive, and Ubisoft Entertainment SA (EPA:UBI) would be required to help in the sale of the new console. But they would face pressures of their own, with struggles in social and mobile channels threatening their established retail businesses.
GameStop Corp. (NYSE:GME) said that customers would fail to acknowledge any new machine that limits the play of pre-owned titles in response to a report about features on Microsoft’s next Xbox video-game console. The Grapevine, a specialty retailer that generates about half of its profit from the sale of used discs, conducted a survey of its most active clients. According to Matt Hodges, a company’s spokesman, these clients would have fewer chances to buy a next-generation console that restricts trading in pre-owned games. He also said, “We know the desire to purchase a next-generation console would be significantly diminished if new consoles were to prohibit playing pre-owned games, limit portability or not
play new physical games.” The company’s PowerUp Rewards program provides early notice about sales collector’s items and promotions to the gamers.
Not all of these stocks are cheap:
| Ticker | Company | P/E | P/S | P/B | P/FCF | D/E | EPS Growth Next 5 Years |
| SNE | Sony | NA | 0.2 | 0.66 | 15.69 | 0.69 | NA |
| GME | GameStop | NA | 0.34 | 1.43 | 7.17 | NA | 12.0% |
| AMD | Advanced Micro Devices | NA | 0.34 | 3.48 | NA | 3.8 | 2.7% |
| KNM | Konami | 17.2 | 1.14 | 1.17 | 786.04 | 0.16 | 32.1% |
| TTWO | Take-Two Interactive | NA | 1.29 | 2.48 | NA | 0.58 | 8.3% |
| EA | Electronic Arts | 32.38 | 1.35 | 2.74 | 21.12 | 0.28 | 13.8% |
| MSFT | Microsoft | 15.25 | 3.19 | 3.21 | 11.25 | 0.2 | 8.4% |
| ATVI | Activision Blizzard | 14.37 | 3.32 | 1.43 | 12.69 | NA | 9.0% |
Electronic Arts and Konami trade at high price-to-earnings ratios and high price-to-free cash flow ratios. Take-Two Interactive is worse still since it ran a loss and had negative free cash flows.
Instead, Sony is a more compelling, dirt cheap speculative play. It trades at a discount to book value and the lowest price-to-sales ratio on this list. Value investors should also consider Activision Blizzard. It is less speculative but less cheap, with reasonable P/E and P/FCF multiples. It is attractive considering that its low price-to-book ratio ignores the value of its internally developed intellectual property.
The article 2 Ways to Play the Gaming Market originally appeared on Fool.com and is written by Bill Edson.
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