Wedbush's Michael Pachter Talks Video Game Stocks

Michael Pachter is an equity analyst at Wedbush Securities and considered to be one of the Street's top analysts in the video game space.

On Tuesday, Pachter was a guest on Benzinga's PreMarketPrep to talk about the video game industry.

Activision Blizzard

First on the checklist: Activision Blizzard, Inc. ATVI and its hot stock that gained more than 20 percent over the past 3 months. According to the analyst, the company's business is "probably getting pretty mature," but its recent $5 billion acquisition of King Digital provides it with a "pretty valuable asset" and a monthly active base of more than 400 million users that play its mobile games.

Related Link: How Material Is King Digital To Activision Blizzard Investors?

GameStop

Activision Blizzard is in a strong position to begin advertising on its games and could eventually add $1 to $2 in earnings per share from advertising related revenue growth.

On the other hand, the analyst is a "fan" of Activision's eSports division, as it is "competing for a tiny slice of the market," and the company is "overly ambitious" with the project, which was also "oversold to investors."

GameStop Corp. GME's core business is "more defensible" than most investors realize despite the growing trend of digital download, Pachter argued. After all, a digital download of a video game costs the same amount as purchasing a hard disk in GameStop's store, so there is no price advantage for the consumer.

However, GameStop's trade-in program should be attractive to investors, as 70 percent of the company's customers take advantage of the program. On the other hand, it is impossible to trade in a digital game, so the majority of gamers will continue to buy physical discs.

On the other hand, GameStop's venture into mobile is a "crappy business," as consumers aren't replacing handsets as often as they did in the past. Nevertheless, GameStop is the number one re-seller of AT&T Inc. T phones and there is some room to grow even if it is also a "lousy" business.

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