Video game retail sales declined for the twelfth consecutive
month in November 2012. According to market research firm NPD,
U.S video game store sales slumped 11.0% year over year to $2.25
billion in the month of November. The decline was the smallest we
have seen this year in both dollar and percentage terms.
A flurry of new game releases and Nintendo's new console
launch in mid-November was fully offset by lackluster console
sales from other hardware developers. Tough year-over-year
comparisons were another reason for the decline, as the
comparable prior-year month had a number of heavyweight releases
Electronic Arts (
a Zacks Rank #3 (Hold) stock and
Call of Duty: Modern Warfare 3
Activision Blizzard (
, a Zacks Rank #3 (Hold) stock.
There were some big releases this November as well, namely
Activision's highly anticipated
Call of Duty: Black Ops II
,a Zacks Rank #3 (Hold) stock. But the strong retail sales of
both the games failed to drive year-over-year software sales
growth (including PC games), which declined 11.0% to $1.43
billion in the month.
According to NPD,
Call of Duty: Black Ops II
topped the game sales chart, pushing October topper
Take-Two Interactive (
, a Zacks Rank #3 (Hold) stock, to the #8 spot.
was placed at #2 while Ubisoft's
Assassin's Creed III
clinched the #3 spot.
Hardware sales plunged 13% year over year to $838.9 million.
After a gap of six years, Nintendo released its new gaming
console Wii U on November 18, 2012 and sold approximately 425,000
units over the next seven days. Microsoft's Xbox 360 was again
the top-selling console with 1.27 million units sold in November.
After reporting strong growth in October, accessories sales
declined 8.0% year over year to $281.0 million last month.
As evidenced from the strong demand of Wii U, we believe that
the highly anticipated launch of new hardware consoles from
Microsoft and Sony (expected in 2013) will boost the sagging
video game retail sales market over the next few years. Until
that happens, Nintendo will enjoy a competitive advantage over
its hardware rivals, in our view.
However, declining software sales remain a concern. We believe
that the rapid adoption of free-to-play games will continue to
cannibalize retail software sales, going forward.
Although we believe that the ongoing transition from the
physical to the digital platform will ultimately benefit the
video game industry (due to the cost effectiveness), low priced
digital games have failed to offset the rapid decline of
high-priced retail sales in recent times. Moreover, the highly
fragmented video game market continues to witness increased
competitive pressures, which is hurting overall
We maintain our Neutral recommendation on Activision, EA,
Take-Two and Microsoft over the long term (6-12 months).
ACTIVISION BLZD (ATVI): Free Stock Analysis
ELECTR ARTS INC (EA): Free Stock Analysis
MICROSOFT CORP (MSFT): Free Stock Analysis
TAKE-TWO INTER (TTWO): Free Stock Analysis
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