New Xbox Consoles Can't Move Microsoft's Stock

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Microsoft ( MSFT ) recently announced that it will start selling its Xbox 360 gaming console equipped with the new Kinect motion sensor starting in November 2010. Microsoft hopes to sell three million Xbox 360 units in the first two months after the launch [1]. Microsoft competes with Nintendo ( NTDOY ) and Sony ( SNE ) in the video gaming console market.

Kinetic motion technology allows gamers to play by simply moving their bodies, with no need for a physical controller. We think innovative technology like this could boost the declining video game market. The success of games like the "Halo" series should also help Microsoft gain market share. That said, the Xbox franchise constitutes a negligible portion of Microsoft's value, so we don't expect these trends to have significant impact on the stock. Our analysis follows below.

The decline of gaming

The U.S. video game market has slumped in recent years. Sales of games and associated hardware (including gaming consoles) fell from $21.4 billion in 2008 to $19.7 billion in 2009. In unit terms, worldwide console sales declined from around 98 million units in 2008 to around 89 million in 2009 [2].

We expect the gaming market to grow in coming years as the three big gaming hardware vendors introduce new features to their consoles. Sony plans to add a rival motion sensing technology called Move to its Play Station 3 gaming console. Nintendo has developed a new version of its DS handheld device that allows users to play 3-D games without special glasses. You can drag the trend-line in the chart above to create your own worldwide console market forecast and see how it impacts Microsoft's estimated share value.

Halo effect

Popular video games can do a lot to drive console sales. Microsoft, for example, has benefited from the huge success of the "Halo" series. After the resounding success of Halo 3, the new Halo Reach racked up $200 million in global sales on the day of its launch [3]. Going forward, we expect Halo and other hot games will help Microsoft boost its share of the console market. In the next interactive chart you can drag the trend-line to create your own console market share and associated stock price forecast for Microsoft.

But it won't move Microsoft's stock

Xbox and Zune together constitute around 1% of our stock price estimate for Microsoft. Hence any upside to our forecast for Microsoft's Xbox share or the overall size of the console market will have negligible impact on the stock.

You can see the complete $28 Trefis Price estimate for Microsoft's stock here.

Notes:

  1. Wall Street Journal: Microsoft bullish on Kinect
  2. Video Gaming Console market
  3. Reuters: Microsoft "Halo: Reach" sales hit $200 million on 1st day




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: MSFT , NTDOY , SNE

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