Video game retail sales declined for the ninth consecutive month
in August 2012. According to market research firm NPD, U.S video
game store sales slumped 20.3% year over year to $515.6 million in
the month of August. Although the year-over-year decline was flat
with the prior-month level, dollar sales deteriorated from $548.8
million reported in July.
According to NPD, retail sales figure represent approximately
50% of the total consumer spending on games. According to NPD's
preliminary estimates, used & rental games sales were
approximately $104.0 million in the reported month. Consumer
spending on subscriptions, mobile games, social network games,
digital full game downloads and add-on content was $391.0
According to NPD, total consumer spending in the month of August
was approximately $989.0 million. The weak retail sales were
primarily due to the ongoing transition from physical to digital
platform, aging hardware consoles and lack of big new releases as
publishers continue to postpone titles for the upcoming holiday
This is evident from the fact that both hardware and software
sales continued to decline in August. Hardware sales plunged 39.4%
year over year to $150.6 million, while software sales declined
9.2% year over year to $237.7 million.
According to NPD,
) topped the game sales chart pushing July topper
NCAA Football 13
Electronic Arts (
. New Super Mario Bros. 2
from Nintendo was placed at #2, while Square Enix's
Kingdom Hearts 3D: Dream Drop Distance
grabbed the #3 spot.
Microsoft Corp's (
Xbox 360 was again the top-selling console for the 18th straight
month with 193k units sold. However, this was down from 308k sold
in the year-ago quarter. As per NPD, Nintendo's DS and 3DS
shipments, as well as
PS3 increased on a month-over-month basis in August.
Nintendo benefited from the recent release (August 19) of its
new gaming console 3DS XL, which accounted for approximately 44% of
total 3DS unit sales in the month of August. In this regard, the
upcoming release of Nintendo's Wii U in late September will be
eagerly watched by investors.
We believe that the ongoing transition from the physical to the
digital platform will ultimately benefit the video game industry
over the long term. As compared to the physical platform, digital
games are more profitable since they require minimum packaging
cost. This cost effectiveness will enable publishers to keep a
popular franchise running profitably over a long period of
Moreover, increasing spending on mobile and social gaming bodes
well for the overall video game sales. We believe that publishing
companies with a focus on the digital segment will stand out even
amid sluggish market conditions. For instance, some companies like
and Activision are well positioned to benefit from this trend going
However, lack of visibility around the monetization of the
digital platform (particularly social & casual online games)
compels us to remain on the sidelines. Since most of the digital
and online games are offered as free-to-play, they remain
significantly dependent on advertising revenues and online sales of
the in-game virtual items. Moreover, the highly fragmented video
game market continues to witness increased competitive pressures,
which are hurting overall profitability.
We maintain our Outperform recommendation on Activision over the
long term. We remain Neutral on EA and Zynga over the long term
We believe that growing popularity of the
Call of Duty
franchise will drive Activision's growth story in the near term.
Currently, Activision has a Zacks #1 Rank, which implies a "Strong
Buy" rating in the near term. EA and Zynga both have a Zacks #3
Rank, which implies a Hold rating in the near term.
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