CHICAGO, Sept. 12, 2011 /PRNewswire/ -- Zacks.com
announces the list of stocks featured in the Analyst Blog. Every
day the Zacks Equity Research analysts discuss the latest news and
events impacting stocks and the financial markets. Stocks recently
featured in the blog include: Electronic Arts Inc. (Nasdaq:
ERTS), Sony Corp. (NYSE: SNE), Microsoft Inc.
(Nasdaq: MSFT), Activision Blizzard Inc.'s (Nasdaq: ATVI)
and Apple Inc. (Nasdaq: AAPL).
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Here are highlights from Friday's Analyst Blog:
Video Game Sales Slip in August
The video game industry continued its dismal sales performance,
reporting disappointing numbers in the month of August. According
to market research firm, The NPD Group, U.S. video game retail
sales declined for the fourth consecutive month to $669.9 billion in August
2011, down 23.0% year over year.
Although NPD's data does not include sales from Xbox Live,
PlayStation Network, Steam or other online channels, revenue from
online social games, mobile games and subscription services such as
World of Warcraft, used games and rentals, its relevance lies in
the fact that retail sales continue to represent 75.0% of the total
video game industry.
Year-to-date, video game sales slipped 5.0% year over year, and
have fallen to their lowest level in the last five years. Earlier,
sales in May, June and July declined 14.0%, 10.0% and 26.0%,
respectively.
NPD cited the late release of Madden NFL 12 from
Electronic Arts Inc. (Nasdaq: ERTS) as one of the major
factors behind the decline. Madden NFL 12 debuted on
August 30 this year instead of early
August.
We believe that the lack of new title release, particularly big
brands and crowd-pullers from the major publishers and developers
led to the decline. A gloomy U.S. macro environment was also
responsible for the dismal sales, as consumers remain reluctant to
spend.
This is evident from the fact that console hardware sales
slipped 12% to $249.4 billion,
compared with $282.9 billion last
year. Even the attractive pricing from major hardware makers
Sony Corp. (NYSE: SNE) and Nintendo failed to drive
sales.
Nintendo reduced the price of its portable 3DS gaming system to
$170 from $250, in late July. The company sold 235,000 3DS
systems, including about 185,000 after the price cut. According to
NPD, the price cut drove handheld devices unit and dollar sales in
August. However, Nintendo's Wii console witnessed lackluster
growth, selling a meager 190,000 units, down 22.2%
year-over-year.
Microsoft Inc. (Nasdaq: MSFT) also suffered due to the
weak macro environment. The Xbox maker posted a drop in unit sales
(13.5% year over year) for the second consecutive month. Despite
the decline, Xbox was the top-selling video-game player in August.
The company garnered a 43.0% share of the hardware market at the
end of August.
Software sales were $264.8
million, down 34.0% year over year. Including the sales of
PC, console and portable games, software sales ended the month at
$285.9 million, down 37.0% from
$455.0 million a year ago.
Deus Ex: Human Revolution, a futuristic detective/shooter
game from Square Enix, edged past Electronic Arts' NCAA Football 12
to become the #1 video game in terms of sales in August. NCAA
Football 12 slipped to the #2 spot from July's top position,
whereas Activision Blizzard Inc.'s (Nasdaq: ATVI) all-time
favorite Call of Duty: Black Ops retained its #3
position.
Sales of videogame accessories were $134.7 million, down 1.0% year-over-year.
Outlook
According to NPD, the remaining four months of calendar year
2011 is of utmost importance for the industry's growth, as the
period will see a number of blockbuster releases from big
publishers.
Apart from already releasedMadden NFL, the industry will
see a spur of new releases during the period, including the
much-hyped Battlefield 3 from Electronic Arts and Call of
Duty: Modern Warfare 3 from arch rival Activision. According to
NPD, strong sales from these franchises are expected to drive
industry sales to growth territory at the end of 2011.
Our Take
We believe the video game industry is undergoing a massive
transition from physical to digital and the corresponding retail
sales decline (9 times over the last 12 months) supports our view.
Digital online games - including used games, rentals, mobile games
and social games have gained tremendous popularity in recent
times.
According to NPD data, consumers spent a total of $1.85 billion on digital online games in the
first quarter of 2011, up from $1.68
billion from the year-ago period. We believe that companies
having an exposure in these segments will rule the market going
forward.
We remain cautious about console makers owing to the growing
popularity of portable devices, such as Nintendo's 3DS gaming
system, Microsoft's Kinect for Xbox Live and various smartphones
and tablets from Apple Inc. (Nasdaq: AAPL), Samsung and a
host of other companies, which we believe will cannibalize their
market share going forward.
The video game market remains highly fragmented with a number of
players such as Activision, Electronic Arts, Capcom, Koei, Konami,
LucasArts, Midway, Namco, Sega, THQ and Ubisoft. This has increased
competitive pressures and has kept a lid on prices.
Moreover, with the growing popularity of digital games, social
gaming companies such as Zynga have gained significance and are
expected to give the traditional video game companies a run for
their money going forward.
We maintain our Neutral rating on Electronic Arts and
Activision, two of the biggest video game companies in our
coverage, over the long term (6-12 months). Both the companies have
a Zacks #2 Rank, which implies a Buy rating in the near term (1-3
months), based on their strong product pipeline for the upcoming
period.
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