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|Activision - 2019Q2|
DISCLAIMER: I am not licensed in any way shape or form to advise you on how to purchase stocks. If you gamble away your financial future because of this blog post, then you are an even bigger idiot than I am. No matter whose advise you follow, please remember the golden rule… don’t invest more than you can afford to lose.
DISCLAIMER 2: While I am a fanboy of many products or companies mentioned in this blog, I am not affiliated with any of them.
Covered Time Period: Feb 15th – March 3rd 2019
Total Change: +4.69%(nice)
(2019/03/05) UPDATE: I blinked on Turtle Beach. Read my update in the Turtle Beach section below.
Although my recently gifted Nintendo Switch(love you Meesh!) has been occupying a fair bit of my time these days, there is another game I have also been playing a lot lately. My recent dip back into Eve Online Market PvP was probably a sign of things to come, but over the past few weeks I have been trying my luck trading stocks on the Robinhood app.
So far the first few weeks have been pretty good to me, but even a relatively novice trader like myself knows that trading can be easy during a bull market like the one we are in now. So while my spirits are high, I fully understand that I am one market correction away from singing an entirely different tune. Also, I know that my overall knowledge of the stock market is limited at best, so realistically the odds of me playing the market are slim to none.
I figured out early on that me purchasing stock in most companies on the market would effectively be gambling. However, as I looked through the investment options on Robinhood, I realized that there was one strategy I could take that might give me a puncher’s chance to come ahead.
That strategy was to stick to what I know, and what I know is games.
The Ground Rules
In hopes of preventing myself from completely losing my ass, I established a basic set of ground rules:
- Only trading stocks, no options
- Only trading stocks of companies that are involved in the video or board game industry
The first one is pretty self explanatory, I will only be playing the “buy low sell high” game. Although I get a great deal of enjoyment watching the pandemonium of options trading on r/wallstreetbets from afar, I don’t have the experience or constitution required for that level of betting. Plus in the interest of keeping my upcoming marriage intact, I need to limit the amount of damage that a bad bet can do.
The second rule is a little more nebulous. My definition of a gaming company is really any company that creates games(Activision, EA, etc…), provides services to gaming companies(Limelight Networks, Sea Limited, etc…) or markets game-related products specifically towards gamers(Turtle Beach, Logitech, etc…). This even includes much larger companies such as Microsoft and Amazon that only have a fraction of their value tied up in gaming related products and services.
The goal of the second limitation is to keep the scope limited, but leave enough options available for me to properly diversify my portfolio. The narrow scope will hopefully allow me to build a strong understanding of the gaming market as a whole, and maybe just maybe give me an edge when trading these stocks over time.
The “Gaming ETF” At A Glance
Now that we have the rules out of the way, lets start talking tickers! Below is the list of stocks I am currently trading, and the stocks that have garnered the most interested from me thus far:
- Microsoft(MSFT) – XBOX is healthy, but really my long bet here is on Azure cloud services. A lot of my funds will move in and out of this stock as I determine which bets I want to take, however I plan on keeping a good chunk of my portfolio in this stock long term.
Day Trading Positions
- Nintendo(NTDOY) – Seeing some fluctuation here, but overall I am confident the company will do well moving forward. Could potentially move this to a long position in the near future.
- Turtle Beach(HEAR) – The main reason I am on this boat is earnings season is coming up, and their (un-audited)preliminary results are looking promising. I’m willing to play with fire a bit here.
- Activision(ATVI) – A relatively lackluster Blizzcon followed by some layoffs have left them in a bit of a dip. However, I see no reason to bet against ATVI long term, their overall track record from a games stand-point is simply too good. Once I clear some positions I’ll almost certainly be buying in here.
- Zynga, Inc(ZNGA) – Been in a holding pattern as of late, so I’ll be watching their catalog of upcoming games. Some skepticism here as mobile gaming revenue growth is slowing across the board. However, as a whole the company seems to be doing well, I’m just not sure what the stock play is right now.
- Sea Limited(SE) – Earnings season is treating me well, but I’m not ready to go long quite yet. However, I will be watching this one closely.
- Bilibili, Inc(BILI) – Earnings season was a winner here as well. Financial situation is improving, but I’m not ready to go long.
- HUYA Inc.(HUYA) – HUYA Has been described as Twitch in China. There is some solid potential for growth, especially since Twitch is currently banned in China. I have some concerns, but I will be watching this along-side Bilibili.
This Period’s Observations: Earnings Reports Are Important
Over the last 2 weeks, the majority of my gains came in the form of short term bets during what is often referred to as “earnings season”. The basic strategy during earnings season is to follow companies that are reporting their quarterly financial numbers, and try to figure out which ones the market will respond positively to. The prevailing wisdom is that companies that exceed their financial expectations will likely see, at minimum, a short term boost in share price. If you bet correctly, then it is just a matter of picking your jumping off point and cashing out your profits.
Sea Limited: Picking Up Steam in Southeast Asia
The first company I tested this strategy on was Sea Limited(SE). They say beginners luck is a thing, and at this point I’d be hard pressed to disagree. I was able to buy some shares of SE before the earnings report, and the next day their stock went up by 35% before the market closed. In an attempt to maximize my profits I used a stop loss order to determine when I would sell the stock.
Investment Vocab: Stop Loss Order
Apart from simply buying and selling at a given point in time, when trading stocks you have a couple of other handy options. One of these options is called a Stop Loss Order.
A Stop Loss Order is basically a set of instructions you send to your broker saying that when a stock drops to a certain price, you want them to immediately sell. Obviously this is a very handy tool in controlling losses, but it can also be used to hedge your bets when you are in a winning position.
When you are up instead of selling right away it can be advantageous to pick a price that you are happy cashing out at, set that as your stop price, then give the stock a chance to keep moving up. If the price does go up, then you can cancel the old stop loss order, and make a new one with a higher stop price to secure additional gains. If it comes crashing back down, then you at least walk away with an appreciable gain.
However, one risk of a stop loss order is that once the order is tripped, there is no lower limit on what price the order will ultimately sell at. It is actually very common for a stop loss order to sell below the stop price, because sometimes the stock price dips so quickly that your broker can’t find a trade at the requested price, so it picks the best price it can find. To combat this some platforms such as Robinhood won’t execute the sale if the sell price drops more than 5% below your stop price. This can be nice when selling stocks with solid long term prospects, but you also run the risk of being stuck with a low value stock if the price doesn’t rebound in the near future.
I decided to try and play this one a little close, and periodically updated the stop price to be around $0.50 above the current high price. This worked for some time, but eventually there was a dip that barely touched my stop price, and all of my shares were sold for $20.00. However, this ended up being a 23% gain, which was better than the $19.52 price I nearly pulled the trigger on first thing in the morning.
The reason for this surge in investor confidence is that Sea Limited managed to beat their quarterly revenue projection by nearly 31%. At this point you are probably wondering what involvement Sea Limited has in the gaming industry. If you are in the U.S. there is decent chance you have never heard of them before, but I can promise you you’ve heard of the games they offer to their Southeast Asian audience.
League of Legends, Firefall, Fifa Online 3, and Speed Drifters are some of the higher profile games they publish on their Garena platform. They also recently released Free Fire, which is at time of writing one of the most popular mobile battle royale games in the world.
While I will never EVER complain about a 23% profit on a stock, I am starting to wonder if I sold too early here. It is entirely possible that this bump is just a regular part of earnings season mayhem, but I am going to keep my eye on Sea Limited long term. While there are many companies attempting to make a platform play right now, their early catalog, and recent push into game development makes them a solid prospect down the road.
Bilibili Inc: Growing Pains
Feeling emboldened by a fresh influx of cash from Sea Limited, I decided to try my luck on another Asia-based company releasing their quarterly earnings. This time it would be the video sharing and streaming platform Bilibili
Initially Bilibili’s focus was on offering video sharing services for on-line communities centered around animation, comic, and game. However, as their platform started to grow, they have branched into virtually all segments of popular culture. Their video sharing services include video-on-demand(VOD) and video streaming.
Using the same stop loss strategy as Sea Limited, I managed to sell at 20.78, right before the price came crashing down…
Honestly it was pretty satisfying to see the stop-loss strategy work to great effect here. Although I was a bit bummed by the relative loss of gains from the SE stop-loss the day before, the BILI stop-loss order saved my bacon.
As far as Bilibili goes as a company… I need to do a lot of due diligence in comparing their platform to HUYA. Both video and streaming services took a bit of a nose dive recently, and quite frankly I don’t know enough about either of them right now to take a truly informed long position. I think it is safe to say I got lucky this time with BILI, but moving forward I need to make sure I do my due diligence before playing the earnings game with them again.
Plans For The Next Few Weeks: Consolidating Into The Azure Bank
Over the next few weeks I have a few different stocks I am going to play around a bit with, before ultimately consolidating into my long term play.
Turtle Beach: Earnings Season
(2019/03/05) UPDATE: I am not doing an earnings play on Turtle Beach. I am worried their current numbers are being bouyed by Fortnite, which I believe is on its way out. I cashed out my holdings at a small profit, and I will be investing it in other opportunities as they arise.
Original Analysis: As alluded to above, it is currently earnings season for Turtle Beach. While some will argue that they are starting to lose favor right now to other companies such as Logitech and Hyper X, at the end of the day this is an earnings play, and from what I can tell their earnings are strong. That all being said, I plan on clearing my position on HEAR after the earnings report, then I will move them to my watch list.
Huya: Also Earnings Season
While Huya is not currently one of my long term picks, I am going to play the earnings game with them. I am especially emboldened by the fact that it looks like the US and China trade war is cooling off, so I believe investor sentiment is going to improve.
When it comes to the actual product they provide, I am not so much banking on their existing product as I am banking on the fact that their biggest competitor Twitch is currently banned in China. I think this will reflect positively in their 4th quarter earnings so I am going to go ahead and throw my chips on the table.
Activision: Buy The Dip
Blizzard entertainment has long been one of my favorite gaming companies. As far as I am concerned they are one of those companies that doesn’t really know how to lose in the long run, and right now their relatively low stock price is tantalizing.
They are currently sitting near a 1 year low. Part of this was a fairly lackluster Blizzcon where their big Diablo announcement was Diablo Mobile, as well as the fact that they laid off 8% of their workforce. While some analysts have the absolutely ridiculous take that this is in response to Fortnite, a much more reasonable response is that they are simple reloading.
During their earnings call Blizzard COO Coddy Johnson stated that they would be “reducing certain non-development and administrative-related costs across our business,” and that the company would be “investing more in development.” To me this is a sign that over the next year Blizzard is going to put together something big. I am borderline ready to take a long position on Blizzard, but for the time being I am going to continue enjoying the volatility of their stock price.
Microsoft: The Azure Bank
While the Xbox One is likely going to be moved to 3rd place when it comes to console sales in the near future, I have no concerns around how Microsoft is doing as a company. They still hold the dominant platform for PC gaming, and outside of gaming their cloud services earnings are going through the roof.
Although I get some satisfaction in seeing Nintendo and Sony kick the big boy around a little bit, I have no delusions that Microsoft is in any kind of trouble. In fact if their cloud services continue to grow the way they have been, I think we could see them at another price plateau before long.
As a result I plan to using Microsoft as my key long term play. Basically the way this is going to work is anytime I run out of interesting moves to make, I will re-consolidate my funds into Microsoft stock, and then as juicy prospects emerge I will sell a portion of those stocks to fund the move(or as I like to call it, “withdraw from The Azure Bank”). While this could potentially bite me in the butt at some point, I simply have too much faith in Microsoft as a company to think that I’ll be eating any major losses for long.
Whew that was a lot!
Now that all of the back-story out of the way, my future blog posts should be shorter. My plan for content moving forward is:
- Portfolio updates every few weeks
- The occasional market research/due-diligence write-up
If you have any thoughts on my articles, please feel free to discuss them with me on Twitter via @GrowUpAndGame.
Last but not least, if you are interested in trying your luck on Robinhood, then please consider using my referral link. If you use this referral link to create a Robinhood account, then both of us will be given a free stock to boost our portfolio.
Thank you everyone, and until next time may the bulls be ever in your favor!