PS4 positions faltering a touch compared to the end of December, but the 2k NBA game is staying strong.
PS4 positions faltering a touch compared to the end of December, but the 2k NBA game is staying strong.
RDR2 continued its dominance on top of the Amazon sales charts through the end of December, which I’m using as a proxy for overall sales. I’ve covered the recent charts of TTWO here. I didn’t buy at the dip today, but I think that is a short term low absent a major market downdraft. Analysts even at the bullish end of the spectrum when at when TTWO was around $130 should be salivating soon.
The middle trade is about as much as I’m willing to risk on the notion of a short term pre-announcement or failing that, analyst upgrade given the numbers I believe I’m seeing.
There are further promising signs (though again hard to measure against expectations) as I’ve seen 2K’s NBA2k19 also strongly on the charts in the last week. NBA season really gets started on Christmas, but I don’t know how this compares to expectations or previous years.
Right now, Amazon game sales leaders on PS4: 2, RDR2; 10 & 11, NBA2k19; 12 RDR2; 19 & 20 GTA5. on Xbox One: #1, RDR2, #3, RDR2, #5: NBA2k19, #9, NBA2k19, #11, GTA5, #14, RDR2, #28 GTA5, #37: RDR2 Ultimate ($89!), #47: WWE2k19.
Two captures of Dec 31:
Take Two has for over a decade been tied to the release cycles of the Grand Theft Auto franchise. You can find a twelve year run of no return, from 2000 to 2012, even after the market bounce. The swoop upwards is from the consistent monetization of Grand Theft Auto online.
The last year was driven by anticipation of Red Dead Redemption 2. Which came out of the gate with roaring sales: 17 million units, far exceeding expectations. A summary from Dean Takahashi of Venturebeat collecting some of the expectations – even those on the high end, at the end of October is here. TTWO went from 120 to 130 quickly, but Take Two was subsequently caught in the market downdraft.
We do know that the old west open world is appealing across the Herring Pond. RDR2 has been the best selling boxed product in the United Kingdom according to Game Industry.biz.
Now RDR2 is a fantastic game, nearly always on top ten lists for the year. Will it monetize online as well as GTA5? To be determined (though I think there is a good possibility of this given the institutional knowledge from the latter.)
What is remarkable however is the dominance the roughly $60 game has shown throughout the most important holiday season.
At this writing December 27th at 3 pm Eastern, in the days after Christmas, the Amazon charts (updated hourly) show for XBox One game sales the following TTWO products in the top 50, as well as RDR2 being the most wished for game.
On the PS4, RDR2 holds the 1st, 10th, 40th, and 57th slots. GTA5 is in 13th and 28th.
Even on the Xbox 360 (the older console), GTA 5 is 3rd and the _original_ Red Dead Redemption is 4th in sales.
GTA5 is on the PC, RDR2 is not. However, GTA5 remained a top seller on Steam this year:
These figures are representative of the ranks the games had prior to Christmas. Though I did no more than spot check the rankings, so it is possible my sampling has all sorts of errors, (Amazon’s rankings change hourly),it was very impressive.
I also didn’t record impressions out of the top 10 – there are plenty of other 2k games floating in and out of the 51-100 slots, and ascertaining how meaningful that is would be hard to measure against expectations.
Was all of this priced into the stock? By investment analysts who haven’t played any of these games, but worried about it going against the fellow open world titles Fallout 76, Assassin’s Creed Odyssey and big budget installments in the Call of Duty and Battlefield franchises? Maybe.
Still I don’t think anyone foresaw this sort of sales dominance. Is Take Two building a moat for immersive open world gaming that has incredibly long monetization? The larger company story is something I’m still immersing myself in, and as a shareholder from $120, I’m down 15% on the trade so far.
This calls for an option trade:
I bought — yesterday, a day early, January 25th expiry 110 calls at $4.20 (I don’t have the confirmation handy, it was very close to that.). This plays with fire: the earnings report that would confirm this thesis comes likely on February 7th. However, a pre-announcement in order would avoid paying for the post-report volatility.
I may also purchase other call options, but haven’t evaluated all of them. The apothesis of this thesis would be to buy something like the January 120 calls, expiring January 11th, now asking $0.70. An earnings pre-announcement would send the stock flying though there remains market risk as well.
NB, another outlier that hangs over this trade: there are also rumors I discount that CBS Board member and Take Two Strauss Zelnick could be the next CEO of CBS. He took himself out of the running, though who knows. That would be a major negative for the stock but an outlier is: could CBS, a $17 billion market cap company, try to acquire a $12 billion market cap company in TTWO? Would not be unheard of.
In the time I wrote this – wrestling to get one of the wonky images up, TTWO has recovered from down $2 to up slightly on the day at $105.
It was an only mildly outperforming week for the strategy, but still the third straight since starting to track. (ticker from last week’s column, monday open, friday close, % change, did it reverse direction, and would going contrary to posted number have beaten S&P).
See the full spreadsheet here.
I got an investor deck for a startup that was going to “disrupt” Autodesk. Pfft is my first thought. They have an enormous operational moat I replied and…then thought in the back of my head, why not look at Autodesk (NASDAQ: ADSK) itself. But it slipped my mind. Who thinks of Autodesk these days?
Then Alexander Eule of Barron’s wrote September 26th about Autodesk, which may as well be known as AutoCAD, after their dominant engineering design suite. They are undergoing a pricing change, shifting from boxed-perpetual to cloud-licensed product. Adobe is in the midst of completing their own pricing transition, to much applause from the street. The primary source for the article is Rob Nicoski of Disciplined Growth Investors who sees, if the transition is well executed, “a company with earnings power of more than $4 a share in five years.”
Aside from a pricing transition it’s pretty easy to conceptualize a large growth driver in the coming years: widespread – maybe even consumer adoption of? – 3D printing.
Does the Adobe chart presage anything for Autodesk investors?
Beyond the fashion of cloud applications – though that’s a relevant consideration for investors looking to have multiples expand, the cloud subscriptions can also significantly reduce the piracy rate that afflicts so much high value software. In Autodesk’s case, that’s estimated at 43% (in this investor report, slide 20)
Autodesk like most tech companies has the problem of explaining GAAP to non-GAAP (meaning, huge employee option grants off the books) expenses but assuming market reception to his remains neutral, the product & cash roadmap is intriguing. From the investor presentation at 2015’s investor day in September:
These numbers bear a great deal of similarity to the analyst estimates’ provided for stories in Barron’s so the likelihood of them should be taken with a grain of salt. That said, engineering and design software is awfully sticky, and deeply embedded into business processes that it would be harder for a start up to disrupt.
Autodesk has under-performed, severely, similar design-oriented software firms like Adobe & Ansys: almost no return in the last ten years versus a 300%+ and 150%+ return.
Adobe’s break to new highs in December 2012 at around 36 presaged an enormous run to the low 80s today – though perhaps a bit ahead of itself now, with an unfavorably received earnings report tonight.
After a decade of lackluster performance there’s a lot of execution to prove. Waiting for a new high in ADSK might leave a lot on the table but that’s preferable to dead money for another ten years. With a market generally threatening a downtrend, there is no particular need to jump in now either. This is a classic case of wanting to follow quarterly reports to see when there is a good market response to successful strategy implementation. One is tempted to nibble at it now.
That said, if the product pricing strategy works, and the engineering software market widens or deepens, long dated call options are an interesting play. Open interest is high in the ADSK Jan 2017 60 and 65 calls, with a last ask of $2.11 & $1.39 respectively. Jan 2018 calls are more thinly traded, with a 70 strike at $2.60 ask, $2.20 last. Maybe not bad for the pivot potential in a stock that was at 63 not so long ago this year until cash flow fears materialized.
* Successfully shorted ZN last few days, lowered the position size for unusual time period. Long March Wheat at 662.75, short Twitter at 41. The wheat has a nice risk-reward and I’ve put in a stop under the lows.
* Really liked Stanley Druckenmiller’s interview on Bloomberg including comments on what great managers are for, and that Japan’s Nov-May seasonal rise is one of the most reliable in the world (including 40k to 7k overall decline, you’d still have made money.) Suggestion of shorting IBM given cloud computing challenge and their use of capital is a compelling idea that deserves more investigation (the low p/e as is makes me wonder about risk-reward versus other short possibilities.) Declining free cash flow argument works even better against NFLX for example. The Amazon comments – that AWS could be half of revenue soon also merit further examination.
* Looking closely at NFLX, HLF, TSLA, P, LNKD on top of TWTR as shorts.
Back from Greece and looking to fire up the blog: ahead on short ZC position from 760; about to break through 735 which has been the repeated low of the last month:
Prior to the summer run up Corn was in the 550s. I have no idea if it can rapidly return there but feel this is a decently safe position to enter into an extension of the position. I did the same on the LULU short, less for technical reasons than increasing fundamental conviction at 68:
I’m down on the effective ZNGA long position (by shorting Jan 13 & 14 puts at 3 & 2.5; the premiums got most of the move down and I also feel there isn’t much further move down there but perhaps could have waited a bit longer to enter the position: now trading underneath net asset value makes the risk minimal I think.
Barrons and Forbes both did big profiles on Intuit (INTU 58) this weekend. When this happens it’s not likely by accident and you can thank a good PR company. Rising stock prices affect the likelihood of feature articles. Reporters want to explain to their readers what is going on, and whether to get on the bandwagon. Sometimes they do themselves. Continue reading
I am looking into where a short short entry point is on Lululemon Athletica (LULU, $77). There is motivation aplenty. Competition from Gap’s Athleta? Patents on pants? Rising inventory? Color Bleeding? Who is John Galt? Landmark Forum participation (see the correction obviously added after some legal notice)? One can over-react to errata but I’ll hone in on other details the website has spacing errors after periods:
The training program was such a success that the lululemon people have created a life for themselves that most people could only dream of.lululemon is a company where dreams come to fruition.
Notifications about particular stores include information that the Walnut Creek, California store will in fact be open on July 4th. Congratulations. For a company whose prime value is brand identity these scratches on the fender do reduce the value of the car.
A small position probably could be had now with a stop over the spring highs…will look more closely in following days. I feel bad to have missed the (first big?) decline in Deckers DECK 45, whose story has some eerie parallels with LULU
LULU is a sloppy company, poorly managed, riding a fashion craze and about to hit severe price competition. SHORT! Namaste.
POSITION UPDATE: Soybeans vindicated today, only commodities position now. Bought some ZNGA outright as it heads into a ferocious short squeeze. Out of ANF.
Abercrombie & Fitch has plenty of problems both managerially and in its sector to be an interesting long term investment. But it is a volatile one, and perhaps set for a small technical run here, according to Gary Smith of Fox Business.
His argument is very Peter Lynchish, seeing lots of kids in the malls at his local ANF. I’m not sure I’d look for it to climb to 50 but somewhere in the mid 40s seems probable, and I’ve set my alert accordingly.
For the opposing view, and perhaps the Businessweek-as-contrarian indicator, there was a negative piece about the secular trends for ANF in Businessweek last month.