Playing In The Gaming Industry

Electronic Arts (NASDAQ: EA) saw its stock tank last week, falling as much as 8%, after CEO John Riccitiello announced plans to step down at the end of the month. The company also announced that its fourth quarter results could come in at the low end of its previous earnings guidance of $1.08 billion. But is this just a minor set back for the company?

Despite the stock's pullback on the news, the company is still up nicely year to date:

The push to online gaming

DFC Intelligence estimates that the online video grame market will grow from $19 billion in 2011 to $35 billion in 2017. By 2017 online gaming is expected to account for over 40% of the total video game revenues. Meanwhile, Gartner also has robust estimates for the industry, expecting that consumer spending on online gaming will grow at an annualized rate of 27% through 2015.

The good news is that EA has a strong online presence which presents solid growth opportunities for the company. The digital (online) business is expected to be an important growth driver for the EA as growth in packaged games appears to be declining.

For 2012, the digital business made up 54% of EA's total revenues and grew 47% year over year basis. The other big positive is that EA expects its digital business to grow by an annualized 20% over the next four years.

Activision Blizzard (NASDAQ: ATVI) is another major game maker, with a market cap nearly triple that of EA. Activision has also been making the transition to digital, with 57% of its revenues generated from the segment last quarter. Credit Suisse believes that the company's 4Q earnings beat was a result of higher-quality games -- including its Call of Duty series. The investment firm also believes that high-quality content will continue to be the drivers for long-term company growth. However, I think EA is the better value -- explained later (read about Activision's move to mobile gaming).

Take-Two Interactive Software, Inc. (NASDAQ: TTWO) currently only derives 23% of its revenues from digital. Last quarter, Take-Two posted EPS of $0.67 compared to the $0.27 for the same quarter last year, and beating consensus of $0.56 handily. This was in large part thanks to its NBA 2K13 and Borderlands 2 games. Take-Two should be able to ride the coat tails of is upcoming game releases from its BioShock and Grand Theft Auto series through 2013, but I think the growth potential of Take-Two is not as pronounced as that of EA.

Industry headwinds include the emergence of online games on social networking websites, including Facebook (NASDAQ: FB). Facebook, however, does expect revenues via payments from the games platform to remain subdued. Facebook games are mostly desktop based and declining desktop usage in the developed markets is expected to hurt its top-line growth in 2013. Facebook is instead focused more on monetizing its mobile presence and breaking into the search industry (read about Facebook's search ambitions).

The other side of the coin

If online gaming is one side of the coin for gamings' future, then mobile is the other. Zynga (NASDAQ: ZNGA) has already recognized such a trend. The social gaming company is now transitioning from online gaming and Facebook to a mobile-focused strategy. This should be a big positive for the company as the number of people spending time on smartphones and tablets is rapidly growing.

Mobile will need to lead the future for Zynga, which reported flat revenues year over year last quarter, but a net loss of nearly $50 million and a 15% decline in bookings year over year. Although Zynga is looking to make its move into mobile never fear, EA has quite the presence here (in mobile) too; "EA Mobile is the world's leading publisher of mobile games."

Don't be fooled

EA appears to be one of the best positioned gaming stocks and the recent pull back could be a great opportunity to get into the stock. EA is also the best "value" from a valuation perspective. The company trades at a 1.4 price to sales ratio, compared to Activision's 2.2; meanwhile, their growth rates are very similar. Analysts expect the companies to grow at 14% (EA) and 13% (Activision) over the next five years. I would be remiss if I did not mention Take-Two, which trades at a mere 0.86 times sales. Yet, I think the stock warrants the low valuation multiple given its long-term expected earnings growth rate is only 9%

Will Windows 8 Be The End Of Microsoft

With mobile technology often seen as the future of computing, investors and consumers everywhere have waited anxiously for news on Microsoft's recently launched Windows 8 platform.

Although numbers have been hard to track down, some of the data points that have emerged about Microsoft's big bet on mobile haven't been as encouraging as some had hoped. In the following video, our tech analyst, Andrew Tonner, sits down with Brendan Byrnes to break down how investors should look at these numbers amid a struggling PC market.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market.

Will Windows 8 be the end of Microsoft?

How Samsung Tried To Sabotage Google

Do you know that Samsung were running Google Android Operating System as a piggyback to be a very successful global smartphone player. Now after officiate the launching of Samsung Galaxy S4, the real Samsung intention were getting surfaced.

Samsung's goal in life is to sell hardware, and to it, Android is merely a means to an end. On the other hand, Google just wants more people on the Internet using its services and seeing its ads.

Over the years, Samsung has had countless software partners, and Google is just its latest flame. Samsung's rise to power presents a unique threat to Android and Google, one that Google has already taken note of. If the company wrangles even more sway in the Android ecosystem, it could leverage higher ad-sharing agreements or other bargaining chips at Big G's expense. Now-former Android chief Andy Rubin had internally voiced concerns over this distinct possibility.

To be clear, Samsung would greatly benefit from a forked version of Android, because it would be an important point of differentiation from other Android OEMs -- much more potent than the current practice of customized interfaces like TouchWiz.

There's no avoiding the fact that the Galaxy S4 is an Android device. However, what Samsung can and did do last night is highlight all of its new apps, services, and software features, while decidedly not emphasizing Google's popular services.

Instead of talking about Google Play and all the types of content available from the search giant's repository, it showed off Samsung Hub, an integrated storefront for digital content like music, videos, books, games, and more. The new S Translator is exactly what it sounds like, and can potentially replace Google Translate. Forget Google Now and spoken turn-by-turn directions in Google Maps, that's what the new Galaxy S Voice Drive is for.

That's not to say that Google's services are gone, just that Samsung is clearly pushing its own instead. These are just some of many examples where Samsung is actively replicating Google offerings (sound familiar?), and are the first signs that Samsung isn't exactly happy with the status quo and wants more control of the customer relationship and experience than it currently has.

At this rate, Samsung will eventually be able to strip Android to little more than the bare bones for its operating system platform, while it loads up its own features, services, and content on top. Google will always have search, but that's just one aspect of its broader Android strategy; Big G's other services are also crucial to its moat-building goals.

Samsung is also actively targeting enterprise customers with its new Knox security certification. The South Korean company is positioning Galaxy devices with Knox within its broader Samsung For Enterprise, or SAFE, initiative. That puts it in the same enterprise market with Apple and BlackBerry, while leaving the rest of the Android army behind. Samsung now characterizes its own Galaxy Nexus, "all other Google Nexus," and "all other Android tablets and phones" as "not safe for work"