Thursday, November 24, 2011
Don't take financial advice from gamers
MMOClash reports a financial analyst downgraded Activision Blizzard stock from "buy" to "neutral" based on an online survey with 381 gamer participants. Now personally I wouldn't buy Activision Blizzard shares; their main cash cow is aging, and the games business is extremely volatile. But I do have doubts whether accurate financial forecasts can be achieved by asking a few hundred gamers.
The first problem with asking gamers for financial forecasts is that you can't get a representative sample. People reading game sites and blogs, and willing to fill out surveys, are already a minority with a stronger than average interest and emotional investment in games. The second problem is that opinions about games usually overshoot the target. It's all hype and talk about the best game ever when a game is new, followed by all gloom and doom predictions. The usual train of thought goes like this: "I lost interest in this game. So the game must have become much worse, and everybody else must lose interest as well. The game is doomed.". You basically get mostly extrapolations where one guy looks at a sample of one, himself, and uses that to predict the behavior of 10 million players. That is statistically unlikely to give a good result.
If we could make accurate financial forecasts about game company shares based on let's say having lost interest in WoW and having liked SWTOR in the beta, we would all be rich. The fact that we aren't tells us that our opinions might be interesting to discuss, but can hardly be considered solid financial forecasting information.