The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
This newsletter lists the key events (including key game releases and financial news) in March, previews our expectations for April, and provides our views of the current state of the video game industry.
The Wedbush Video Game Index– our market cap-weighted index of video game companies — was up 5 percent in March and slightly outperformed the broader market averages. This was due to strong months for GameStop and two of the covered publishers (although all of the covered publishers were up for the month), as well as buzz around the new consoles, with the Sony (NYSE:SNE) PlayStation 4 unveiling in February and a Microsoft (NASDAQ:MSFT) Xbox Next announcement expected as early as the next few weeks.
The Russell 2000 and the S&P 500 were both up 4 percent for the month as confidence continued to improve, helped by increasing home prices among other factors. Among the covered publishers, Nintendo had the strongest month, up 13 percent as the stock rebounded from recent lows.
The company was helped in part by its presence at SXSW. GameStop was up 12 percent as investors looked ahead to the upcoming console transition. Take-Two (NASDAQ:TTWO) was up 10 percent due to outstanding reviews for new release BioShock Infinite. On a constant f/x basis, the index increased 6 percent. Excluding Nintendo, the index increased 3 percent (on a constant f/x basis as well)…
February U.S. console software sales were $352 million, down 27 percent from last year’s $484 million and below our estimate of $395 million (down 18 prcent). Despite a handful of high-profile new releases and a manageable comparison (down 20 percent), sales once again reverted to negative territory after an extra week in January allowed sales to fleetingly turn positive.
Key drivers of the decline were lower-than-expected sales for non-covered publishers. We also believe that the unveiling of the PS4 console may have contributed, as core gamers may hold off purchases while awaiting the launch. Software units were down 28 percent and ASPs flat due to the positive impact of new releases. PC software sales were down 27 percent.
Hardware sales were $244 million, down 36 percent compared with last year’s $383 million and well above our estimate of $177 million due to the stronger-than-expected performance of each of the key hardware devices except the Wii U. Combined hardware and software (including PC) sales for February were down 31 percent y-o-y.
We expect March console software sales to be led by new releases: Microsoft’s Gears of War: Judgment, Nintendo’s Luigi’s Mansion: Dark Moon, Square Enix’s Tomb Raider, and Take-Two’s BioShock Infinite, as well as Activision Blizzard’s (NASDAQ:ATVI) Call of Duty: Black Ops II. In addition, PC new releases including Activision Blizzard’s StarCraft II: Heart of the Swarm and EA’s (NASDAQ:EA) SimCity had strong debuts…
We expect positive growth in March (for the second time in the past three months) and September of this year, but sustained growth will remain elusive until late 2013 or 2014, when the new consoles from Sony and Microsoft have launched, likely alongside each other.
Key March headlines:
o 3/5 – EA released SimCity, selling through over 1.1 million units in its first two weeks despite many server issues.
o 3/6-7 – The Wedbush 2013 Transformational Technologies Management Access Conference was held in New York.
o 3/12 – Majesco reported Q1:13 results roughly in-line with expectations, and maintained bearish FY:13 guidance.
o 3/12 – Activision Blizzard released StarCraft II: Heart of the Swarm, selling through ≈ 1.1 million units in two days.
o 3/14 – NPD reported disappointing February U.S. console software sales, but better-than-expected hardware sales.
o 3/18 – EA announced John Riccitiello, CEO and Director since April 2007, had resigned effective March 30.
o 3/25-29 – Game Developers Conference 2013 was held at the Moscone Convention Center in San Francisco.
o 3/26 – Take-Two released BioShock Infinite to outstanding reviews.
o 3/28 – GameStop reported better-than-expected Q4:12 results, but provided likely overly conservative FY:13 guidance.
Key April events:
o 4/18 – March NPD U.S. video games sales data release. ⇑ GME, ⇑ TTWO
o 4/18 – Microsoft to report Q3:13 results.
o 4/22-26 (est.) – Zynga to report Q1:13 results. ⇑ ZNGA
Michael Pachter is an analyst at Wedbush Securities.
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