The average value of the GDX12 fell heavily during May and June, closing out the second quarter at 938.74pts, a drop of 3.7% on the first quarter.
The flagging video games industry weighed on the GDX12, turning in negative results for all 3 months of the second quarter. June returned an average of just 907.53 ($267.72), compared to a March average of 986.90 ($291.13). Of the constituent companies of the GDX12 only two are trading above their second quarter open: both The Coke-Cola Company (KO) and PepsiCo (PEP) have been buoyed by sales increases and positive investor responses to their plans for overseas expansion. Coke is expected to report a 1.7% rise in earnings and has announced major investments in both China and India over the next few years.
The other GDX12 companies have suffered hard as video game sales fall. In June sales of hardware, software and accessories fell 29% to just under $700 million, almost $300 million less than where they stood this time last year. Hardware sales fell heaviest, reflected in the plummeting share price of Nintendo (NTDOY), the largest faller on the GDX12, down 23% over the last three months. E3 failed to spark a turnaround in the companies' share price, though they held a 75% share of handheld console sales for the second consecutive month, "Pokemon Conquest" was the 7th highest selling game in June and it predicts sales growth with the release of the 3DS XL and the Wii-U.
During the June period accessories sales increased slightly by 4% helping peripharls producer Mad Catz (MCZ). The company has been suffering an extended slump after sales results became tied to the Rock Band series which hasn't released a new iteration since February 2011. Mad Catz has recently teamed up with a number of current and upcoming game franchises to produce various peripherals: at E3 it announced a number of products for the Wii-U as well as headsets for the upcoming Microsoft (MSFT) title "Halo 4".
Over the second quarter Activision Blizzard Inc. (ATVI) received a slate of bad news: majority shareholder Vivendi (VIV) is looking to sell its stake in the company and as yet isn't getting much interest. Added to this was the toppling of Blizzard's flagship title "World of Warcraft" from its position as the most played game in the world. However, Activision Blizzard stocks have held up well and have held over $12.
With games sales down in the second quarter where did the players go? The consensus is into the broadly defined "online casual gaming" arena but shares in Zynga (ZNGA) have collapsed and taken up residence at the $4.90 mark, less than half of its $10 IPO price. This comes on reports that its main titles like "Draw Something" and "CityVille" have seen a "faster-than-expected decline" in users and a slide in revenue.
The sword thrust through the heart of "World of Warcraft" was wielded by Riot Game's "League of Legends", a subsidiary of Chinese holding company Tencent Holdings (0700) who are now trading on the Hong Kong Stock Exchange near an all-time high. User data also showed South Korean developer Nexon's (3659) "MapleStory" had broken into the top 10 most played games in the world. Nexon struck and all time high on the Tokyo Stock Exchange on July 9th. Both companies are expanding from their traditional Asian markets by purchasing assets in America and developing for Facebook and both companies have been approached by Vivendi in regards to the sale of Activision Blizzard. Their games are "free-to-play" in comparison to the hefty monthly subscription attached to WoW and offer the ability to use real world currency to buy in game currency and items to level up with or improve a user's characters. While this seems to be working, as shown by the numbers of players who have turned away from WoW in favour of LoL, this is the same model that Zynga built its massive valuations on in the early days and the question is can this type of model continue to keep users interacting with the game and investing in their character. If so, and should one of them become tied to Activision Blizzard, they could become the new power brokers in the games industry.
From its December 2011 close to its June 2012 close the GDX12 has fallen 2.71%. The averages for each month and the second quarter averages are:
April Average: 973.07 ($287.05) -13.83 - 1.4%
May Average: 935.89 ($276.08) - 37.18 - 3.82%
June Average: 907.53 ($267.72) -28.36 - 3.03%
Second Quarter: 938.74 ($276.92) -36.02 - 3.7%