SNEAK PEEK ANALYSIS: Video Game Software Sales

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

We expect June U.S. retail video game console software sales data to be released by the NPD Group after the market close on Thursday, July 12.

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We expect software sales of $305 million, down 34%  vs. last year’s $462 million. We expect sales to be up 19% sequentially, due to a five-week period for June compared to only a four-week period for May. Recent industry weakness is likely to continue, and a lackluster release lineup will likely keep sales challenged for a seventh consecutive month, despite an easy comp of down 13%. In this unprecedented eighth year of the current cycle, we expect software sales to be more concentrated than in the past, with sales peaks for blockbuster releases and valleys occurring in historically weak months.

Exhibit 1: Estimated Console Software Sales

By publisher ($ millions)                                                           YoY                                             MoM

Jun-12E             % change                                  % change

Activision Blizzard (NASDAQ:ATVI)            $38                     -21%                                              33%

Electronic Arts (NASDAQ:EA)                         $30                     -44%                                             26%

Majesco (NASDAQ:COOL)                                  $6                        -30%                                             19%

Nintendo (PINK:NTDOY)                                   $45                     -27%                                             59%

Take Two Interactive (NASDAQ:TTWO)    $41                      -28%                                            -6%

THQ (NASDAQ:THQI)                                          $10                       -65%                                            20%

Ubisoft Entertainment (EPA:UBI)                   $31                          21%                                           -12%

Covered Publishers                                                 $200                     -29%                                             16%

Overall Industry                                                       $305                       -34%                                           19%

Publishers as % of Market                                    66%

Source: The NPD Group/Retail Track and Wedbush Securities estimates.

We expect June sales to be led by new releases Nintendo’s  Pokémon Conquest (DS) and Warner Bros.’  Lego Batman 2: DC Super Heroes (PS3, PS Vita, 360, DS, 3DS, Wii, PC), as well as Ubisoft’s Tom Clancy’s Ghost Recon:  Future Soldier, which likely benefitted from a late-May release date. New release Take-Two’s Spec Ops: The Line (PS3, 360, PC) likely sold only modestly, due to a late-June release date and mediocre reviews, while sales for Lollipop Chainsaw (PS3, 360) from Warner Bros. likely failed to live up to initial hype. We think Take-Two’s Max Payne 3 had a difficult second month after sales in its debut month underperformed our lofty expectations.

We expect hardware sales of 75,000 Wii units (down 72% year-over-year), 225,000 Xbox 360 units (down 56% y-o-y), 145,000 PS3 units (down 48% y-o-y), 100,000 DS units (down 74% y-o-y), 125,000 3DS units (down 13% y-o-y), and 60,000 PS Vita units. In May, unit sales were down y-o-y for every platform except the 3DS for a sixth consecutive month, despite price cuts for nearly all models over the last year or so. PS3 and Xbox 360 unit sales were down 26% and 41%, respectively, while Wii sales were under 100,000 units for the second time ever. Combined 3DS and DS unit sales were down 27% compared to last May, while combined PSP and PS Vita unit sales were up only 7%. Console hardware unit sales were down 47% compared to last year. We do not expect hardware sales to comp positively until the new consoles launch or current generation consoles see significant price drops, likely this fall.

Despite recent weakness, we think that the game publishers remain undervalued as a group, and believe that many will appreciate substantially should software sales return to positive territory. It is unlikely that gamers are abandoning their passion in favor of other forms of entertainment, and inconceivable that if packaged goods sales have declined, people formerly playing games are now doing something unrelated. Rather, we think that the market has this one wrong, and we believe that historically low valuations for the publishers present an opportunity for investors to generate positive returns.

Michael Pachter is an analyst at Wedbush Securities.

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