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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 October, previews our expectations for November, and provides our views of the current state of the video game industry.
In October, Electronic Arts (NASDAQ:EA) and Take-Two reported better-than-expected results, Nintendo reported results that were roughly in line with expectations, and Zynga (NASDAQ:ZNGA) reported results that were roughly in line with its negative preannouncement. Microsoft (NASDAQ:MSFT) and Sony (on November 1) also announced quarterly results.
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The Wedbush Video Game Index—our market cap-weighted index of video game companies—performed better than the broader market averages in October, and was roughly flat for the month. The Russell 2000 and S&P 500 both decreased roughly 2% due to concerns about the E.U. Ubisoft (EPA:UBI) had the strongest month, up 15% due to the release of the highly-anticipated Assassin’s Creed III, the company’s most highly pre-ordered game ever. GameStop (NYSE:GME) had a strong month, up 9%, as anticipation built for the big November releases, while Take-Two was up 7% after providing a release period for Grand Theft Auto V (spring 2013) and exceeding quarterly expectations. Majesco (NASDAQ:COOL) and THQ (NASDAQ:THQI) were both down over 20% due to a muted response to new releases and liquidity concerns, respectively. On a constant f/x basis, the index increased 1%. Excluding Nintendo, the index decreased 1% and was flat on a constant f/x basis.
September U.S. console software sales were $497 million, down 18% from last year’s $610 million, and below our $520 million estimate. Non-covered publishers were down almost 70%, with difficult comps from the releases of Microsoft’s Gears of War 3 and Deep Silver’s Dead Island last year. Units were down 19%, with ASPs up 1%. PC sales were up 116% due in part to Activision Blizzard’s (NASDAQ:ATVI) World of Warcraft: Mists of Pandaria. Hardware sales were $211 million (down 39%), and above our estimate of $186 million—so combined hardware and software (including PC) sales were down 23% y-o-y.
We expect October console software sales to be down 25% y-o-y, led by Activision’s new release Skylanders: Giants (Wii, 360, PS3, 3DS), EA’s new release Medal of Honor: Warfighter (360, PS3, PC), Nintendo’s new releases Pokémon Black Version 2 (DS) and Pokémon White Version 2 (DS), Take-Two’s September release Borderlands 2, and Ubisoft’s new release Just Dance 4 (Wii, 360, PS3). We note that Ubisoft’s Assassin’s Creed III (360, PS3, PS Vita) and EA’s Need for Speed: Most Wanted (360, PS3, PS Vita, PC) were released on October 30, three days after the retail close, and as a result, the sales of these games will be reflected in November’s NPD results.
Key October headlines:
o 10/4 – Zynga preannounced Q3:12 results below our expectations, and lowered FY:12 guidance.
o 10/11 – NPD announced worse-than-expected console SW sales and better-than-expected console HW sales.
o 10/15 – Nintendo announced that it would reduce the price of the Wii to $129 from $149.
o 10/15 – Activision Blizzard announced that Elite for Call of Duty: Black Ops II will be free.
o 10/24 – Nintendo reported Q2:13 results that were roughly in line with expectations, but lowered FY:13 guidance.
o 10/24 – Zynga reported Q3:12 results and provided revised FY:12 guidance in line with its preannouncement.
o 10/30 – EA reported a Q2:13 EPS beat, but lowered FY:13 guidance to reflect Medal of Honor weakness.
o 10/30 – Take-Two (NASDAQ:TTWO) announced that Grand Theft Auto V would be released in spring 2013.
o 10/31 – Take-Two reported better-than-expected Q2:13 results and lowered FY:13 guidance to reflect a GTA V delay.
Key November events:
o 11/1 – Sony reported Q2:12 results.
o 11/5 – THQ to report Q2:13 results. ⇓ THQI
o 11/6 – Ubisoft to report 1H:13 results. ⇔ UBI
o 11/7 – Activision Blizzard to report Q3:12 results. ⇑ ATVI
o 11/8 – October NPD U.S. video games sales data release.
o 11/13 – Activision Blizzard to release Call of Duty: Black Ops II (360, PS3, PC). ⇑ ATVI
o 11/15 – GameStop to report Q3:12 results. ⇔ GME
o 11/18 – Nintendo to release the Wii U in North America. ⇑ 7974.JP
Michael Pachter is an analyst at Wedbush Securities.
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