The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
We conducted channel checks throughout the weekend and noted solid traffic for consumer electronics, although industry trade groups reported that basket sizes were down because of promotional pricing. Traffic at Best Buy appeared to be driven by a high level of promotion, with several gift card offerings resulting in strong traffic. We observed solid traffic at GameStop (NYSE:GME) stores, as many consumers sought consoles that were difficult to find. PS4s were in limited supply at Best Buy, and both PS4s and Xbox Ones were sold out at the several GameStop stores that we visited.
We saw some discounting for recent releases, most notably EA’s (NASDAQ:EA) Battlefield 4. The level of discounting suggests that the price cuts were sponsored by EA; this means to us that sales of Battlefield 4 may be tracking below sales levels for the prior version two years ago, although we observed discounting for the prior version during Black Friday weekend 2011. We believe EA’s Q3 revenue guidance is appropriately low and reflects lower sales.
The Wedbush Video Game Index, our market cap-weighted index of video game companies, was down 13 percent for the month of November due to difficult months for Electronic Arts (down 16 percent), GameStop (down 12 percent), and Take-Two (NASDAQ:TTWO) (down 9 percent). EA was hurt by weaker-than-expected sell-through in October for new release Battlefield 4, according to NPD, and poor reviews for NBA Live 14.
GameStop was down despite strong Q3:13 results due to conservative EPS guidance and margin concerns from mix. Take-Two was down from an unclear long-term release slate and the announcement that it had repurchased the Icahn Group’s stake. Nintendo had the best month among the covered companies, up 19 percent, due to handheld hardware strength. On a constant f/x basis, the index was down 11 percent. Excluding Nintendo, it was down 24 percent.
October U.S. console/handheld software sales were $482 million, up 12 percent compared to October 2012 but below our estimate of $580 million. Sales were up y-o-y for the third consecutive month and fourth month this year due to a stronger release slate this October and the continued positive impact of Take-Two’s Grand Theft Auto V. Sales were below the level that we had expected, however, primarily due to far weaker-than-expected debuts for EA’s Battlefield 4 (360, PS3, PC) and Ubisoft’s Assassins Creed IV: Black Flag (360, PS3, Wii U).
We believe many gamers delayed their purchases of the two games ahead of the next-gen console launches, with the PlayStation 4 arriving on November 15 and the Xbox One on November 22. We expect sales in November and December to be down 10-25 percent for each game. We expect November industry sales to be down due to the shift of Assassin’s Creed’s release date to October this year and lower Call of Duty sales caused by worse-than-expected reviews, next-gen hardware supply constraints, and higher spending on hardware this year.
Key November headlines:
• 11/5 – Activision (NASDAQ:ATVI) and Infinity Ward released Call of Duty: Ghosts for the Xbox 360, PS3, Wii U, and PC
• 11/6 — Activision announced it sold over $1 billion of Call of Duty: Ghosts into retail stores as of the first day of release
• 11/6 — Activision Blizzard reported better-than-expected Q3:13 results and raised FY:13 guidance by amounts that were lower than the Q3:13 beats
• 11/12 — Ubisoft reported Q2:14 sales in-line with consensus after pre-announcing and a 1H:14 EPS miss
• 11/14 — NPD announced October console/handheld software sales below our expectations from weaker-than-expected debuts for EA’s Battlefield 4 and Ubisoft’s Assassins Creed IV: Black Flag, and hardware sales above our expectations due in large part to the strong performance of the 3DS
• 11/15 — Sony launched the PlayStation 4 at a price of $399
• 11/18 — Sony announced that 1 million PS4 units sold through in the console’s first day of release
• 11/21 — GameStop reported better-than-expected Q3:13 revenue and EPS slightly above consensus. It raised FY:13 guidance and provided somewhat conservative Q4:13 guidance despite the launches of two new consoles
• 11/22 – Microsoft (NASDAQ:MSFT) launched the Xbox One at a price of $499
• 11/26 — Take-Two announced that it had repurchased all of the shares held by the Icahn Group
• 11/29 — Black Friday
Key December events:
• 12/2 — Cyber Monday• 12/12 — November NPD U.S. video games sales data release
Michael Pachter is an analyst at Wedbush Securities.
Don’t Miss: 6 Facts You Didn’t Know About Disney’s ‘Frozen’.