That's why I go overweight Zynga. I want more of my money on the guy who dictates change to the other guys. While it's tough to hammer them too hard for it, both EA and Activision came way late to the digital party.
Neither company saw the future or, at the very least, they failed to act on it. Now, they're playing catch up. On the bright side, both have strong-enough balance sheets to subsist while they regroup. Activision has no debt and about $3.5 billion in cash. EA sports only $534 million in debt and has nearly $2 billion in its savings account. And, on the even brighter side, their digital businesses are starting to emerge hard and fast.
At Activision, digital made up 34% of sales in 2011. Revenue in that segment popped 14% between 2010 and 2011, from $1.44 billion to $1.64 billion. At EA, digital growth has been even more robust, jumping 47% year-over-year (FY 2011 to FY 2012) from $833 million to $1.23 billion.
In all three cases, I basically blow off any near-term stumbles -- translation: I buy on weakness -- as long as the long-term narratives remain intact. For instance, Activision reports Wednesday night after the bell. If the company stumbles, I seize the long-term opportunity.
RetailersLululemon (LULU - Get Report) and Ralph Lauren (RL). Retail apparel. Here's a space where plenty of companies coexist, but only the strong and well-positioned thrive. I only want to be long a handful of retailers. Generally, I will only consider apparel companies that operate from an Apple (AAPL)-like position of strength. They need to score high on at least one of the following three counts:
The company has a curious business plan: It runs out of things on purpose (an attempt to boost demand by creating scarcity), it doesn't generally discount its products, it doesn't open new stores very often, and it doesn't electronically track customer purchases.That was not an earthquake you just felt. It's a Steve Jobs' Bozo explosion bubbling to the surface. I see LULU getting to the point where Ralph is now in about five-to-10 years.