Microsoft (MSFT) is about to launch its latest version of the Zune multimedia player. To date the company has sold two million units. In contrast, Apple (AAPL) has sold over 150 million iPods.
Microsoft has a chance to kill the Zune with a good excuse. By cutting prices on its Xbox 360 last week, it is putting pressure on the margins of its "devices" division.
NPD released its monthly video game data showing that December video game spending increased 30.9% from December 2006. What is interesting is that software sales of game titles were up 36%, while hardware in game console sales was up 17%. These are strong numbers and while that strength is irrefutable, 2008 will be a tough repeat because of comparable sales to 2007 over 2006 levels from late 2006 console launches. The question is, "Are video games recession-proof?"
Video game sales are in the home and frankly video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is. Recession-proof might be a stretch. Sales will be strong and there will still be money made by the game publishers. But the holy grail of ‘comparable sales’ is going to be a tough one on the console makers in 2008. Here are just some of the articles today on the bet that game sales will or won’t hold up:
In hardware sales saw a 63% gain for the Sony PlayStation 3, a 123% rise in the Nintendo Wii, and up 15% in Xbox 360 sales. Hand-held device sales rose 54% for the Nintendo DS and 11% for the Sony PSP.
The next assured mega-hit title coming out is Take-Two’s (NASDAQ: TTWO) Grand Theft Auto IV. But at some point (and likely some point soon) these console sales aren’t going show the same gains like in 2007. This notion that World of Warcraft may potentially be coming to video game consoles might add literally millions of gamers to the MMORPG craze. All of this would be good for video games. Electronic Arts (NASDAQ: ERTS) has its waves of upcoming releases in the year and Activision (NASDAQ: ATVI) is looking interesting in the upcoming Activision-Blizzard merger. Microsoft’s (NASDAQ: MSFT) Bungie Studios may soon be its own public company too. Interestingly enough, we expect another merger in this sector although maybe not in the classic scenario and that has been under review for our Special Situation Investing Newsletter.
We think that GameStop (NYSE: GME) will actually hold up better thanoverall stores like Best Buy or Circuit City based on game title salesin 2008, but there just aren’t any new major platform launches on thehorizon for maybe another two years. That varies from person toperson, but some feel we’ll have the same gaming systems until 2011. Our notion is that video games might actually be somewhat recession-proof. But with $1.76 as the high part of the guidance out of GameStop, at $50.00 this still leaves its P/E at 28.4. If the economy gets any worse than we think can then investors might not be wanting to pay that multiple after a 400% stock rise since the start of 2005. We have been very positive on this on for some time and we don’t think it will go to hell in a hand basket. But it will take the U.S. not falling into a recession for us to stay very positive on GameStop today and this stock has been peaking since November. GameStop also a competitor coming on strong as well.
GameStop shares have fallen from $60+ at the start of 2008 before it gave raised guidance that the street panned and shares now sit right at $50.00 (with a $49.72 close). An 18% slide is significant, even if it is still up 100% from the 52-week lows.
Jon C. Ogg
January 18, 2008
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Just one week ago 24/7 Wall St. suggested that Nintendo (OTC:NTDOY) might try a Hail Mary Pass and offer a voucher with a guarantee if they can ramp more from manufacturing or if it can outsource more capacity. The company launched a deal via GameStop (NYSE:GME) today for "rain-checks" so that if you pay the full console price that you can get your Wii by the end of January. Hmmmmm, sounds awfully familiar…..
If you look at how strong the data is you’d wonder how many Wii systems Nintendo could have sold if it actually had them in stock. The NPD data for the latest release shows the following console sales for last month:
We noted how American consumers are impatient, but this might just satiate at least some of the demands. This is actually a pretty good number for Microsoft (NASDAQ:MSFT) but shows that Sony’s (NYSE:SNE) PS3 is a dud and still considerably underperforming.
Jon C. Ogg
December 14, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
Microsoft (NASDAQ:MSFT) has generated over $300 million in sales from Halo 3 titles in the first week alone, with $59.95 of that being from me. There were more than 1.7 million copies pre-ordered, which broke its own record-breaking release of Halo 2 sales and beat the record sales set for Spider-Man 3 and of Harry Potter movies. Video games surpassed movies in annual sales in recent years. If you’ve ever played ANY of the Halo games you’ll know why.
It seems that there are somewhere in the vicinity of 12 million or more Xbox 360 units on the marketplace. When you include the Xbox 360 console sales for the upcoming holiday season and say that all titles will be the cheap $59.95 version you can see where this can quite easily generate $500 million in sales with less than 10 million copies sold. There are always lagging sales and these Halo 3 sales will continue. We haven’t even gotten the release for Halo 3 on PC yet, although several game store managers are not even sure if it will come for PC’s. We think it will by late 2008, but that’s speculation. The question isn’t IF Halo 3 hits $500 million. It’s just how quick it happens that is a question.
If you would like to read the full official story from Microsoft you can see it on the site here.
24/7 Wall St.’s Views on Halo 3:
Jon C. Ogg
October 4, 2007
The lines are out. The costumes are on. Halo 3 is on imminent release. 10 minutes for the east coast. Halo 4, or the next version/series of Halo, is already under development. Have I been told so? NO. Have I been told the opposite? YES. Do I believe this is the end? Hell No!
Predicting sequels and predicting the outcome of a mega-hit series is pretty easy if you merely follow the money. I have no idea of the outcome of Halo 3 beyond the reviews….. Yet. But I can follow the money, and that is simple. There will be more Halo "money" for Microsoft (NASDAQ:MSFT). GameStop (NYSE:GME) and Best Buy (NYSE:BBY) will be banking on it.
I have no clue if Master Chief or the Arbiter make it out of this "last" episode alive. I would predict the Arbiter bites the dust and takes it for the home team, and Master Chief either lives or is questionable. But….. IT DOESN’T MATTER……. This is Sci-Fi and way out into the future. As long as some remnant of DNA exists these soldiers can be brought back. And even then, more powerful foes and entirely unknown foes of yet can surface.
This was supposed to be Microsoft’s foray into profitability in the entire Xbox franchise. They aren’t about to permanently kill off the ticket in the bread line.
Maybe it’s the Master Chief. Maybe it’s the Arbiter. Hell, Maybe they both die. It doesn’t really matter. Follow the money!!!!!
Regardless, "Finish The Fight" can not be finished yet.
OK, I have to go get my copy of the game.
Jon C. Ogg
September 25, 2007
By now, everyone on earth knows of the launch of Halo 3. Microsoft’s (NASDAQ:MSFT) Bungie Studios is launching this at Midnight tonight. This should pretty easily surpass the $125 million in first-day sales from the predecessor Halo 2 title. But Microsoft is too large of a stock to focus on a video game. The good news for Microsoft is that this is the event that should help the entire Xbox venture a profitable foray for the company.
The Halo 3 retail sellers are where you have to look from the investor side, and that leaves just one pure-play: GameStop. On August 17 GameStop (NYSE:GME) stock was at a mere $40.00-ish price with many share price closes being $39 to $41 during the market malaise. But now shares sit at $55.28 as of Friday’s close, and are up another 1.3% pre-market Monday at $56.00. This represents over a 30% gain, and we all know the major culprit: Halo 3.
We have covered the launch of HALO 3 for Microsoft’s (NASDAQ:MSFT) Xbox 360 as one of the musts for gamers, and even covered how this would impact other gaming companies. This will be a win for GameStop Corp. (NYSE:GME) and even for Best Buy (NYSE:BBY), although GameStop sounds like it is going to be out-dorking the dorks.
GameStop will host “Finish the Fight” midnight events on Monday, September 24, 2007, at over 3,700 of its U.S. GameStop and EB Games stores for the long and highly-awaited launch of HALO 3. This will include Halo trivia contests and Halo 2 challenges that will lead up to the first sale of the game at 12:01a.m. If a Halo trivia contest isn’t dorky, then what on earth is? This sure sounds dorky to this 30-something dork. Halo fans can also check out GameStop’s “Halo Store.” Most participating GameStop and EB Games locations will begin their countdown to launch at 9:00 p.m. local time; however, customers are encouraged to contact their local store to confirm the exact time of the event.
Schools and tech support departments around the country are probably going to have very light attendance next Tuesday and Wednesday. NPD showed a good grab in the August sales for Xbox.
Jon C. Ogg
September 18, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
NPD has its data out for the month of August showing another massive month in video game sales. Game titles and hardware showed roughly a 46% combined gain over August 2006.
The Nintendo (NASDAQ/PK:NTDOY) Wii still took the lead with over 400,000 consoles selling. The negative part of this is that this represents a 5% sequential decline from July. And the other downside is that Wii-nies won’t be playing Halo 3 in less than two weeks like every Xbox 360 owner will be.
The Xbox 360 from Microsoft (NASDAQ:MSFT) sold over 276,000 consoles in August after announcing price cuts. The Xbox 360 crowd is obviously looking forward to this Halo 3 record breaking launch, because even early last month it came out that Halo 3 had pre-sold over 1 million copies of its blockbuster game.
Take-Two Interactive (NASDAQ:TTWO) also won out with its BioShock game title selling 491,000 units. Shares of TTWO are indicated higher pre-market. Electronic Arts (NASDAQ:ERTS) Madden NFL 2008 sold 897,000 units.
While the comparables for year over year from 2007 compared to 2006 are strong, you know this is going to set a huge benchmark for 2008 that will be tough to show this same sort of growth.
Jon C. Ogg
September 14, 2007
Take-Two Interactive (NASDAQ:TWO) is showing how its woes are far from over. The company is lowering guidance because it delayed the launch date for its upcoming blockbuster game Grand Theft Auto 4. The company says additional development time is required to complete the title. Hopefully, if Take-Two doesn’t want there name to be "took-none," they aren’t developing any more "Hot Coffee" scenes. This GTA title is now being delayed to fircal 2008 instead of calender Q4 2007.
Take-Two is also delaying its Manhunt 2 for PS2, PSP, and the Wii. The losses now look large, quite large. The company says it is in sound financial position, but they just now irritated shareholders and clients. Investors who jumped in hoping that the new team was going to do a full takeover probably wish by now that they would have played a stock by the name of Forrest Gump’s fruit company.
There is always some good news, and this is the case for the rest of the sector. Microsoft’s (NASDAQ:MSFT) Halo 3 is going to set records for game releases. GTA was set to be another major blockbuster coming out right after Halo 3. In short, Electronic Arts (NASDAQ:ERTS), THQ Interactive (NASDAQ:THQI), and Activsion (NASDAQ:ATVI) may have just gotten one monkey off their backs. Activision (NASDAQ) just released earnings and is trading up about 1% on "Guitar Hero". THQ Interactive (NASDAQ:THQI) traded higher today, but its shares are up another 1%; and Electronic Arts (NASDAQ:ERTS) is up almost 1% after a 7% rise today, despite its warning yesterday. GameStop Corp. (NYSE:GME) isn’t faring as well since this takes out a key upcoming blockbuster title out of the Christmas season sales, with shares giving back gains today with a 3.6% drop in after-hours.
We noted just yesterday how the sales out of the upcoming Halo 3 and GTA 4 would have acted as a suction against many of the outside game title sales for a period after those were released. This delay of the GTA title just got rid of a monkey for the other game publishers.
Take-Two shares are down almost $3.00 in after-hours trading down to $14.00.
Jon C. Ogg
August 2, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
Electronic Arts Inc. (NASDAQ:ERTS) has posted results with a gross profit of $229 million, but its actual net loss was $132 million. Its diluted EPS was -$0.42 net and -$0.22 on a non-GAAP basis on a 4% drop on revenues to a total of $395 million. First Call estimates were -$0.34 non-GAAP and revenues were expected at $389.5 million. The stock was down somewhat in sympathy with THQ Interactive (NASDAQ:THQI) after a lower loss but forecasts including higher spending.
Fiscal March-2008 Guidance: revenues $3.2 to $3.5 Billion, up $100 million from prior guidance and net revenue excluding impact of deferrals $3.65 to $3.85 Billion (up $50 million from prior guidance). Non-GAAP EPS $0.90-$1.20, in line with prior guidance. Unfortunately its GAAP EPS is still a loss, even if narrower: -$0.63 to -$0.10 instead of -$0.77 to -$0.23 prior. First Call estimates for Fiscal march-2008 are $1.14 EPS and $3.7 Billion revenues, so the mid-point is under EPS targets and somewhat in-line to a tad under the mid-point on revenues.
Next quarter guidance: $465 to $570 million revenues, but $825 to $910 million excluding impact of change in deferred net revenue. Non-GAAP EPS targeted at $0.10 to $0.20 outside of deferrals. First Call pegs estimates at $0.33 EPS and $960 million revenues, so it looks like that is a shortfall.
The truth is that these are the throw-away quarters for video game companies. The companies have slower sales in this quarter so the only issue at hand is each company’s outlook. The most important issue to watch for all videogame producers in the next couple or three months is if the mega-hit releases of Halo 3 from Microsoft (NASDAQ:MSFT) and the new Grand Theft Auto release from Take-Two Interactive (NASDAQ:TTWO). Halo 3 comes in late September and GTA comes in October as of now, and these two releases at the last coincidental calendar timing caused available gaming dollars to migrate away from all other producers for a period of 60 to 90 days as game players dwelled on those titles. It looks like Halo 3 and GTA spending are going to exact a toll again against the other gamers.
Here is the ‘feel good ahead’ commentary part from Warren Jenson, Chief Financial and Administrative Officer: "Looking ahead, we have a strong slate. In the balance of the fiscal year, we plan to launch our full EA SPORTS lineup, Need for Speed Pro Street, MySims, Medal of Honor Airborne and ten new properties, including Army of Two, The Simpsons, SKATE, Boogie and Rock Band."
Shares closed down 1.1% at $48.10 in normal trading, and shares are down over 1% more in after-hours trading to about $47.50. That is within spitting distance of the $46.14 and well under the $58.85 highs seen in the last 52-weeks.
Jon C. Ogg
August 1, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
New data out from NPD, show Nintendo putting the wood to Sony (SNE) and Microsoft (MSFT) in game console sales during June.
PC World provided a table of June sales compared to May:
562,000 – Nintendo DS (+25%)
381,800 – Nintendo Wii (+13%)
290,100 – Playstation Portable (+24%)
198,400 – Xbox 360 (+28%)
98,500 – Playstation 3 (+20%)
Nintendo’s lead is now astonishingly wide and does not appear to be flagging as time goes on. The company recently announced that is earnings in the last quarter rose three-fold. This stands in contrast to the recent hardware Microsoft has had with its Xbox and the extended warranty it had to offer customers.
Nintendo’s success is an unlikely one, given the company’s relative size, especially 18 months ago. But, the Wii was different enough to be disruptive and appeals to consumers outside the hardcore gaming crowd.
And, that has been more than enough.
Douglas A. McIntyre
Nintendo’s profit increase 4x in the quarter ending in June to $669 million. The company increased guidance for the year and the company raised its profit forecast by 40%.
Sales of the company’s Wii game unit have hit 9.1 million since the game was introduced last November. According to The Wall Street Journal: In June, Wii outsold the PlayStation 3 by nearly 4 to 1 and the Xbox 360 by almost 2 to 1 in the U.S., the world’s largest video game market, according to NPD Group Inc
In the meantime, Microsoft’s (MSFT) Xbox has suffered from hardware quality problems that lead the company to extend warranties on the machine and take a $1.1 billion charge.
But, the real damage is to Sony (SNE). According to the FT: Sony wants to convince consumers that its games consoles are essential “living room hardware”, capable of seamlessly networking with other Sony devices. This makes the Playstation the cornerstone of Sony’s plans to sell HDTV and Blu-ray HD players. If the Playstation’s sales continue to flag, the company’s vision of the home entertainment center of the future could be irreparably damaged.
That damage is going from being a possibility to a certainty very quickly.
Douglas A. McIntyre
Sony (SNE) is tired of having sand kicked in its face by Nintendo. The smaller company’s Wii game platform handily outsells the PS3 and will probably continue to do so, despite a $100 price cut on the Sony product.
Now Sony has decided its want to go after Nintendo’s other game system, the DS. The new Sony PSP portable will have a lower price than its predecessor.
But, a slight price drop may not matter, In the year ending March 31, Nintendo sold 23.6 million DS units to Sony’s 8.4 million PSPs.
Sony’s game division management must now try to engineer coming from behind in both the console and portable businesses. And, it faces Microsoft’s (MSFT) Xbox 360 and 360 Live products. The Japanese company has publicly said it will improve revenue and cut loses in it game operations.
That goal is looking less and less likely to be met.
Douglas A. McIntyre
Nintendo today announced a game controller that is operated the user’s feet. Called the "Nintendo Balance Board", the new product allows gamers to manipulate the action on their screens while moving around and on and off the device like skate boarders.
The new controller will also be launched with a new game called Wii Fit. Players will get points in the game for difficult moves jumping on and off the board.
The new development shows why Nintendo’s Wii is outselling Sony (SNE) PS3 and Microsoft (MSFT) Xbox 360. Even with price cuts these game consoles are too "old style" for anyone other than hard core players.
If the Wii continues with innovations like this, it is very likely to continue to draw those with more casual interest in video games, and strenthen its lead over rivals.
Douglas A. McIntyre
It would be tempting to think that Sony (SNE) is cutting its PS3 price in reaction to hardware problems with the Microsoft (MSFT) Xbox. But, the decision is probably due to the fact that the company is not selling many of its flagship game platforms.
Just last week, Sony’s president said the company would not cut PS3 prices. This week its appears that he may have been dazed or confused.
Sony knocked $100 off the cost of the PS3 in the US, bringing the retail cost to $499, more in line with the Xbox 360. Industry analysts say that the component costs for the game platform may have dropped enough to allow for the cut. But, it is a bit hard to believe that underlying hardware costs have dropped 20% in such a short time.
In other words, Sony is probably eating gross margin in a move to get moribund sales back on track.
In May, Sony sold less than 82,000 PS3s in the US. Microsoft sold about 155,000 Xboxs, and Nintendo sold over 338,000 Wiis.
Sony now finds itself in a double bind, and one that it may not be able to get out of. Sales of the PS3 are slow and may not improve, and its is making less money on each unit.
Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.
The market’s reaction to the $1.1 billion of warranty charges that Microsoft (MSFT) is taking for defective Xbox hardware may have missed the point. The charge covers about 13 billion Xboxs.
But, what does that mean to the division that handles the Xbox at the world’s largest software company?
Last quarter, the Entertainment and Devices division of Microsoft had total revenue of $947 million. The unit lost $330 million.
The Xbox warranty charge is more that the entire revenue of the division for the last quarter.
Douglas A. McIntyre
Microsoft (MSFT) has been trying for years to get consumers to use its software to bridge the digital divide between their PCs and TV. The latest attempt is the company’s Media Center. There is little evidence that it has sold well.
Almost by accident, the world largest software company has discovered another conduit to the TV–the Xbox 360. Microsoft has launched a new service called Xbox LIVE Marketplace. The purpose of the new operation is to allow Xbox users to have access to movies and TV shows, some for free and others for a modest price. As one industry executive told The New York Times: “We need to find viewers wherever they are,” said Michele Ganeless, the executive vice president and general manager of Comedy Central. “Some of them are firing up their Xbox rather than their cable box. They have so many entertainment options. Being on Xbox is a perfect way for us to reach them in their own environment.”
Microsoft claims that revenue from the service is rising at double digits month over month, It also say that over 400,000 copies of an HDTV version of South Park where downloaded recently.
Big marketing dollars and sophisticated software could not help Microsoft in the home, but the Xbox has worked.
Better to be lucky than good.
Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.
Nintendo raised its guidance again for the year ended March 31. It won’t post the actual results until the end of April, but its Wii and DS systems have been hits for the company. It mostly attributed the DS handheld system for the success. The sales are being estimated now at 966 Billion Yen (US$8.1 Billion) compared to previous forecasts of 900 Billion Yen and estimates of 930 Billion Yen. Back in January it already forecast that profits would be a record.
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