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"Modern Warfare 3" Will Mark the End of the Video Game Console Era


"Modern Warfare 3" will be one of the last hurrahs for the console-dominated gaming era as the world shifts toward new-school, alternative platforms.

At the very least, Zynga should at least hit the $1 billion revenue mark this year, representing growth of about 70% or higher.

And remember, Zynga is very young. In 2008, its revenue was just $17 million!

For comparison's sake, how quickly are the console-dependent video-game companies growing?

Wall Street sees Electronic Arts (ERTS) increasing revenues by 7% this year.

(THQI)? A 17% increase.

GameStop (GME)? A 4% rise.

Take-Two Interactive
(TTWO)? A 9% decline.

Activision? A 14% drop.

Is the money going to companies like Zynga coming straight out of the console-gaming industry?

I'd say that at least some of it is, based upon the fact that literally hundreds of millions of people are playing games on Facebook and other social-gaming outlets. And if that many people are spending more time online playing cheap or free games, then some of them are spending less money on console games.

One could argue that weak sales of consoles and games simply means that we're late in the cycle, where things normally slow before the next generation comes.

However, that would indicate a pretty weak cycle, considering that life-to-date sales of the Nintendo Wii, Sony PS3, and Microsoft Xbox 360 now stand at 194 million units, or 15% below the combined sales of last generation's consoles.

How strong could the next cycle possibly be if this one is underperforming?

Let's talk stocks.

I see the entire traditional gaming industry as a value trap. This would include the aforementioned EA, Activision, THQ, Take-Two, GameStop, Sony, and Nintendo. I would run from all these stocks like the plague.

These companies, particularly EA and GameStop, are increasingly pushing themselves as social/casual gaming powerhouses, but the numbers don't support the PR. Their efforts, primarily driven by expensive acquisitions, are just not moving the needle.

So who will be flourishing in the new era of gaming?

Apple (AAPL) and Google (GOOG) are the first names that come to mind, because their respective iOS and Android platforms own the smartphone and tablet worlds. That means they own mobile gaming, at Nintendo's and Sony's expense.

Facebook and Zynga are next on my list, though I suspect both companies will come public too late. They've already grown so much that they are dangerously close to maturity.

I know there are still some major video-game industry bulls out there. I hope they have a huge victory party when Modern Warfare 3 sales hit the stratosphere.

Because odds are, there won't be much to celebrate after that.
Position in AAPL
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