PlayStation 5 Hits 19.3 Million Lifetime Shipments As Sony Reports Sales Gains & Sets Ambitious Annual Hardware Target

Now that I’ve posted about recent results from both Microsoft and Nintendo, it’s time to dig into the last of the “big three” console manufacturer this earnings season.

That would of course be Sony, which posted its annual results for fiscal 2021 on Tuesday.

During these 12 months ending March 2022, the Japanese consumer tech company saw positive momentum in both its overall business and PlayStation segment. Sales and operating profit for the firm in general each saw double-digit gains since last year.

Even amidst challenges on the hardware side, momentum hasn’t slowed much since a record holiday quarter for PlayStation. While growth rates hovered in the low single-digits, Sony’s Game & Network Services (G&NS) just achieved its second best trailing annual revenue and operating profit. This is especially impressive given the major demand spike last year during more restrictive quarantines in various markets.

Hardware is the headliner for Sony’s gaming business now that the current console generation has entered its second year. After shipping the expected 2 million PlayStation 5 consoles during the quarter of January to March, fiscal year shipments totaled 11.5 million. This was in-line with Sony’s guidance, which I’ll note was reduced from nearly 15 million just last quarter.

It follows that PlayStation 5 is now upwards of 19.3 million lifetime. It’s still not easy to find one and Sony’s suppliers are limited by part availability, which means it’s lagging its predecessor more than ever. At this point, PlayStation 4 had shipped over 3 million more units. It seems that more than its counterparts in the space, Sony is having a tougher time securing inputs.

Which is why I was a bit surprised by its forecast looking ahead to the next fiscal year ending March 2023. Sony’s management has set quite an ambitious goal of moving 18 million PlayStation 5’s over that time. It would be an increase of 6.5 million, and bring lifetime units to 37.3 million. Personally, I’m not nearly as optimistic.

Elsewhere in the report, Sony reported slight contractions in a couple engagement statistics. Both PlayStation Plus memberships and Monthly Active Users (MAU) declined since March 2021, signifying it’s lost players since the pandemic peaks. However on the financial side, Sony overall and PlayStation saw sales and profit increases which means those people sticking in the PlayStation ecosystem are spending money.

One area where PlayStation excels is first-party software. Its teams are responsible for some of the most critically-successful titles in the industry, thus enticing buyers to pay that premium price tag. So it makes sense executives call out plans to invest more in its game development resources and strategy of placing titles on other platforms, namely PC.

“Going forward, we aim to grow the game business by strengthening our first party software and deploying that software on multiple platforms,” said Chief Financial Officer (CFO) Hiroki Totoki during its earnings call. “

Buckle up, let’s see what’s driving Sony’s recent growth.

The gallery above contains various slides and charts based on Sony’s FY 2021 results.

For the company in total, fourth quarter revenue rose 2% to over $20 billion. That led full year sales growth of 10% to above $88 billion. In terms of operating profit, this was $2.33 billion or almost three times as much as the prior year. That substantial quarterly momentum was behind the annual profit jump of 26% to upwards of $10.71 billion.

G&NS is still the leading business by both sales and income when looking at segment reporting. Pictures and Electronics Products & Solutions (EP&S) grew the most, while Financial Services proved to be the only major business line to decline during this time.

Focusing on the PlayStation business alone, January to March sales increased a modest 1% to $5.9 billion. Operating profit nearly doubled to $777 million. Over the latest 12 months, gaming generated $24.4 billion in revenue which was 3% higher than prior year. Annual operating profit was effectively flat around $3 billion.

The top-line growth was attributed to an increase in hardware sales plus the impact from foreign exchange rate, outpacing a decline in mainly third party software. Sony stated it’s seeing better margins for hardware, contributing to that more consistent profitability. Which is good news in this environment of rising costs. It means when hardware is selling, on average its price point makes up for manufacturing expenses. This is consistent with Sony’s comments in the past that the standard PlayStation 5 edition became profitable after only a handful of quarters on market.

This dynamic is reflected in the product category chart, where annual sales from Hardware & Others grew 10% to $7.5 billion. Network Services boosted 7% to $3.6 billion. Digital Software & Add-On Content was the only sub-grouping to decline, though it wasn’t by much. It saw a 2% dip to $12.7 billion, and still comprises more than half of the PlayStation business. Underlying this was mainly a reduction in add-on content, implying a bit less spending on that type of downloadable content.

Per usual, I’ll run a quick comparison to major players in the games industry. Here’s what I wrote in my article on Nintendo, because it’s relevant here:

Tencent reports later this month, though most recently had an industry best $27 billion from gaming. Microsoft’s Xbox division posted $16.5 billion. Factoring the pending Activision Blizzard deal, it could be upwards of $23 billion to $24 billion depending on cost savings, etc. Unfortunately, both of these companies don’t break out profit from games. On the other hand, Sony also reported results today featuring $24.4 billion in revenue then $3 billion in operating profit. Thus, while Nintendo’s overall sales aren’t as much as these others, it’s currently more profitable than the PlayStation brand.

Moving onto a round-up of various supplemental updates from Sony’s materials, I’ll now talk software performance, player engagement, subscription movement and services output.

First up is software sales, as measured by copies sold. For the year, Sony reported declines in both total and first party games. On the whole, 303 million units sold across PlayStation platforms. Out of that, almost 44 million were first party games. Compare that to 339 million and 58.4 million respectively during last year. And it wasn’t really a lack of output. On the console exclusive side, titles like Ratchet & Clank: Rift Apart, Uncharted: Legacy of Thieves Collection, Horizon Forbidden West, Gran Turismo 7, Ghostwire Tokyo and Returnal hit this year. While lower year-on-year, first party software wasn’t as much to blame here.

It’s more releases from external publishers that are causing declines, and I wager softer performance of Call of Duty: Vanguard is the most significant contributor. While it’s still massive, the title is under-performing in the context of premium Call of Duty offerings. Perhaps the suite of sports titles that usually hit in the Fall, as well. And this latest quarter saw Elden Ring, which seems to be more successful on PC, plus Dying Light 2: Stay Human.

Now, it’s also a natural normalization of spending from pandemic highs. People are seeing higher prices elsewhere, thus limiting more discretionary spending. It’s not necessarily a doomsday scenario.

Digital split ended up being pretty consistent in the realm of software sales. Downloads made up 66% of all game sales during fiscal 2021, which is effectively the same as last year’s 65% figure. Lately then, this means 2 out of every 3 games sold on a PlayStation platform is downloaded as opposed to purchased via traditional retail.

Looking at Sony’s current main subscription of PlayStation Plus, memberships declined ever-so-slightly to 47.4 million. It was at 47.6 million in March 2021. The company recently outlined its rebranding plan, which will combine this service with PlayStation Now streaming capabilities into a set of PlayStation Plus pricing tiers. I think it’s overly complicated to have three tiers, and it’s not a true competitor to Xbox Game Pass in its form starting this June. Though I believe it can attract more subscriptions, so the end result should be a net positive. Even if I don’t think Sony is going far enough with what it’s offering.

Similarly on the engagement side, Monthly Active Users (MAUs) dipped in fiscal 2021. It started the year at 109 million, then ended up at 106 million. Management didn’t share much more in the way of engagement or play hours, so I have to infer that they were lower than a year ago. Which makes sense as I’ve talked about mean reversion and spending normalization.

Not to be forgotten just yet, PlayStation 4 made an appearance in the supplementary report with 100K units shipped during the fourth fiscal quarter. That brought its annual total to exactly 1 million consoles shipped, and pushed its lifetime figure to around 117 million. Based on Sony’s optimism around PlayStation 5 shipments increasing, this could very well be the last hurrah for its predecessor.

Considering the current consumer technology environment and where purchasing habits were at this time last year, Sony’s fiscal 2021 report is a triumphant one. Gains in both revenue and profit while battling headwinds from component shortages and rising inflation are worth celebrating. For PlayStation, hardware may be lagging historically and software sales are trending down, yet these are temporary situations. Financially this business is stable as ever, supplementing its traditional console sales with digital, service and add-on spending which will only increase as PlayStation Plus rebranding and partnerships with external publishers continue.

Before closing out, I’ll take a look ahead leveraging Sony’s own forecasts. It’s also time to throw in some predictions of my own!

Starting with that PlayStation 5 guidance of 18 million console shipments expected in the coming year. Management suggests the company will be able to secure enough parts, and at reasonable prices, to reach this elevated goal compared to the 11.5 million over the last 12 months. I believe they *think* they can, yet what will happen in reality is anyone’s guess. Even the smartest leaders can’t accurately predict the future when there’s this much uncertainty.

Personally, I don’t see what executives do. Reading the room using comments from chipmaker CEOs and industry experts, plus considering lock-downs in China, I’m much closer to 15 million or 16 million. More than most, I’m preparing for the semiconductor shortage to last into next year or more. The longer it goes, and if inflation continues with it, I predict Sony will reduce that forecast something like six months from now.

Flipping to financial forecasts, Sony is anticipating some robust top-line growth though guarding against pressures on the profitability side. The firm expects revenue to pass $101 billion in the year ending March 2023, which would be an increase of 15%. Even with that double-digit sales growth, it’s guiding towards 4% lower operating income of around $10.3 billion.

Sony is expecting a similar trend within G&NS where revenue will be higher yet operating profit should decline. In fact, revenue guidance is showing a substantial 34% jump to $32.6 billion which would be a record year for PlayStation. That reflects positive impact from hardware, peripherals, software and exchange rate impact. Still, much higher costs for game development and expenses related to acquisitions will drag down operating income by 12% to $2.7 billion.

“We plan to increase software development expenses aimed at strengthening first party software at our existing studios by approximately 40 billion yen ($300 million) year-on-year,” Totoki said. “And we have incorporated that impact into this forecast.”

Executives expect the $3.6 billion Bungie deal in particular to close before December 31st. If the G&NS segment excluded this acquisition, Sony claims operating profit would be virtually flat.

Taking a look at pending flagship software releases on the console exclusive side, the schedule is actually somewhat light for the next 12 months. Square Enix’s Forspoken was pushed from May to its current window of October. God of War Ragnarok is the big one of course, currently with a nebulous “2022” timing. I may be in the minority, I just don’t buy that the sequel to 2018’s masterpiece God of War will be out this year. However, I do see a launch between January and March 2023, in which case it will help boost sales this fiscal year. Then there’s titles like Marvel’s Spider-Man 2 and Marvel’s Wolverine from Insomniac that are still a ways out.

Then there’s the potential for PlayStation VR 2 during the coming 12 months. Sony’s been drip-feeding information on its next generation virtual reality headset in recent months, showing off its form factor, brand new controllers, advanced technologies and Guerilla Games’ Horizon Call of the Mountain project. Many industry followers think it will launch this year. I’m skeptical given it has to exist in the same supply conditions as the PlayStation 5 right now, though it wouldn’t shock me to see it out this holiday season.

Tangential to gaming is Sony’s transmedia push, seeing as the Uncharted movie has made nearly $400 million dollars since dropping in February. The company clearly has strength in IP ownership, and plans to leverage that in places other than just gaming.

“Following the success of the first movie adaptation of the popular PlayStation game title Uncharted in Motion Pictures, we are leveraging our game IP by proceeding with the adaptation of Ghost of
Tsushima
and The Last of Us into video content,” Totoki said.

Then there’s the constant swirl of rumors around potential acquisitions. Sony of course shouted out the Bungie and Haven Studios purchases. Could there be more in the near future? I’ve heard the rumblings about Square Enix after it sold various assets to Embracer Group. I’m thinking it remains independent and continues to partner closer with Sony. Which leaves other third parties still available. If I had to guess, I’d say another development studio or two will be next. And no, not FromSoftware!

Sony’s plans are ambitious and it expects to see substantial revenue growth in the coming year, even if high costs put pressure on its profitability. I believe top-line growth for gaming in particular will be limited if it misses the PlayStation 5 hardware guidance, so I’m more bearish than Sony’s leadership. It all depends where component cost and availability trend, and my estimates prepare for the worst.

Have any questions on today’s Sony recap? What are your reactions to the news and numbers? Do you think PlayStation VR 2 and God of War Ragnarok will be out this fiscal year? Am I crazy to think it won’t hit the 18 million PlayStation 5 target? Yell at me here or on social media, as always.

Oh. And always check my latest earnings calendar for more on gaming, media and tech company results. Have a great rest of the week and season, be well everyone!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥112.3.

Sources: Company Investor Relations Sites, KnowTechie (Image Credit), PlayStation Blog.

-Dom

Nintendo’s Annual Results Decline Slightly Amidst Hardware Shortages During The Company’s Best Year Ever for First Party Software Sales

Everyone that’s seen my latest earnings calendar knows the deal!

Nintendo is up next for this usual series of earnings recap and reaction articles for major gaming companies, this time focused on its annual results for the fiscal period ending March 2022.

While Switch hardware momentum slowed a bit, software is as strong as ever. In fact, stronger than ever.

As part of its report Tuesday, the Kyoto-based video game developer and publisher shared a variety of statistics around its yearly results. Software shipments from a units standpoint rose 2% last year. The firm even reported its highest level of first party software sell-through to consumers for a single platform.

And it’s had a lot of platforms since it entered the games business way back in the 1980s!

Its most recent in the Switch has been a commercial darling since launching in March 2022, spurring growth after the dark days of its failed Wii U console. While it didn’t see as much hardware success as fiscal 2021, it still achieved management’s latest shipment estimate plus had the second highest annual sell-through since it hit market outside of that first year.

Nintendo’s results, which saw dollar sales slow in the single digits and operating profit remain virtually the same, fits the industry theme of reverting to more normalized spending habits. Even if down from highs of last year, this was still its second best annual financial performance in more than a decade.

“Regarding Nintendo Switch, we will continue to convey the appeal of all three hardware models to maintain a high level of sales momentum and expand the install base,” the company wrote in its report. “Other software publishers also plan to release a wide variety of titles, and we will work to strengthen sales through the combination of existing popular titles and a continuous stream of new titles.”

Before moving into the full report, I want to highlight a recent article on Nintendo from friend of the site Kat Bailey at IGN. Entitled “Inside the Growing Discontent Behind Nintendo’s Fun Facade,” this investigative piece digs into the company’s culture and workplace conditions, notably its treatment of contract workers. It’s a rare peek behind the curtain, as relevant as ever considering how well the company is doing. Once you get done here, I highly recommend reading Kat’s fantastic coverage.

It’s time to dig into the nitty gritty.

On the financial side, Nintendo shared that net sales declined 3% to $15 billion. Operating profit lowered ever-so-slightly to almost $5.3 billion. Both of these were the second best amount respectively since fiscal 2010, came in above forecast and fit with the general theme of mean reversion.

These two metrics are displayed over time in the charts above, showing a slight contraction for both from highs a year back.

Splitting out by region, Americas was the leading contributor at 43%. That’s down slightly from 42% last year. Europe’s allocation remained consistent at 25% while Japan moved down from 23% to 21%. The remainder of countries outside these regions made up 10% of 2022’s total.

Nintendo shared insights into product category mix as well. Software sales contributed 52% of dedicated video game platform sales, while hardware made up the remaining 48%. That’s flip-flopped versus last year, when software was 47% and hardware comprised 53%. This shows the balance of Nintendo’s business exposure, plus a lean towards games in a time where console shipments lagged on the supply side.

Similar to my article on Microsoft’s latest financial report, here’s a rundown of how Nintendo stacks up to industry peers when it comes to the latest annual results. Tencent reports later this month, though most recently had an industry best $27 billion from gaming. Microsoft’s Xbox division posted $16.5 billion. Factoring the pending Activision Blizzard deal, it could be upwards of $23 billion to $24 billion depending on cost savings, etc. Unfortunately, both of these companies don’t break out profit from games. On the other hand, Sony also reported results today featuring $24.4 billion in revenue then $3 billion in operating profit. Thus, while Nintendo’s overall sales aren’t as much as these others, it’s currently more profitable than the PlayStation brand.

Digging into the aforementioned softening hardware sales, the Switch sold 4.11 million units during January to March which amounted to an annual total of 23.06 million. While that’s down 20% from the 28.83 million of fiscal 2021, it’s still the second best 12 months on record and exactly in-line with the company’s most recent guidance of 23 million. It’s worth noting this was revised downward twice from an original call of 25.5 million, signaling extended supply challenges.

Lifetime Switch console sales now stand at 107.65 million. An annual dip was expected given both the life cycle timing and global semiconductor shortage, it was just a question of how much. Tending to lean conservative, Nintendo’s initial guidance for the year ending March 2023 is an even lower amount of 21 million. That’s effectively returning to the amount of fiscal 2020, its third full year on sale.

Now that there’s three Switch models, Nintendo shares performance for all of them individually. The standard model is still the most popular of course, contributing 13.56 million to the year’s total. That’s down 33%, mainly due to the introduction of the OLED version which shipped 5.8 million boxes since hitting retail in October 2021. Finally, Switch Lite declined 57% to 3.7 million units in fiscal 2022.

Shifting into the Switch software category, Nintendo sold 235 million Switch games in the year ending March 2022. This is 2% higher than the almost 231 million of a year ago. First party games made up almost 80% of the platform’s annual software sales. Which essentially means 4 out of every 5 titles sold on Switch is published by Nintendo.

This sort of increased performance, happening as hardware sales slip, mainly proves how new and existing console owners keep buying games at a higher rate than even last year’s peaks. Which makes sense for a company known for its quality of output.

This annual growth led to lifetime software sales on the platform hitting 822.18 million. It was at 587.12 million back in March 2021.

Nintendo Switch ended fiscal 2022 with 39 “million-selling” titles during the fiscal year alone. This was at just 29 last quarter! For the year, 26 were published by Nintendo while 13 came from third-parties. Last year, Switch experienced 36 million-sellers: 22 from Nintendo, then 14 from external partners. A clear sign of catalog strength and what I call the “Switch Effect” on new titles in franchises normally considered as niche.

A couple headline releases during the latest quarter helped drive this consistency on the exclusive software side.

January’s Pokémon: Legends Arceus was the highest profile of the bunch, moving 12.64 million copies so far. That’s the third best start for a Pokémon game on Switch behind only 2019’s Pokémon Sword & Shield at 16 million and the nearly 14 million of Pokémon Brilliant Diamond & Shining Pearl last November. Truly an excellent beginning for Legends Arceus, which sold-through 11.4 million of those shipments, considering it’s a single release in a franchise that historically puts out two titles at a time.

Kirby and the Forgotten Land released towards the end of this period, rounding out the company’s first party slate for the fiscal year ending in March. It hit 2.65 million units shipped in those handful of days alone. Not only that, the cute 3D platformer sold-through over 2.1 million copies to buyers. This is undoubtedly the fastest-selling mainline Kirby in history; it will almost certainly pass the franchise’s best-seller of 1992’s Kirby’s Dream Land at 5.13 million last count.

Expanding to earlier catalog launches, Mario Kart 8 Deluxe naturally maintains the top spot on the all-time Switch best-sellers list. Bolstered by new downloadable content, the game originally out in 2013 shipped nearly 2 million in January to March alone! That pushes it above 45 million copies lifetime, 45.33 million to be exact, as one of only a few games ever to hit this milestone.

Animal Crossing: New Horizons moved an additional million copies in the quarter, no biggie, to continue as the second best-selling Switch title with 38.64 million to date. Super Smash Bros. Ultimate stays in third, selling 770K units to fight past 28.17 million in aggregate.

Since launching at that nearly 14 million copies mark in November 2021, Pokémon Brilliant Diamond & Shining Pearl extended to 14.65 million as of March. That makes it the 8th best-selling Switch game and 2nd best-selling Pokémon title on the hybrid platform. Exercise experience Ring Fit Adventure raced past the 14 million milestone to date, legging out an additional half million units and rounding out the Top 10 Switch best-sellers.

Speaking of milestones, Metroid Dread is already the top-selling Metroid game of all time. While it only shipped 160K units during January to March, combining that with the massive start last October puts it at 2.9 million copies or just above the 2.84 million of 2002’s Metroid Prime. Talk about having a ball!

Elsewhere, Mario Party Superstars shipped 1.45 million in the quarter, ending it at 6.88 million. The Legend of Zelda: Skyward Sword HD pushed another milly, now at 4.22 million lifetime. Both of these contributed to that ever-expanding million-seller list for this past fiscal period.

Wrapping up various miscellaneous indicators and tidbits of information, Nintendo indicated digital dollar sales rose 4.5% to $320 million. Downloads accounted for 43% of software sales for the year, same as during 2021. Its digital contribution is lagging the wider industry standard, which has been around 50% or more depending on the publisher or manufacturer, however that’s always been the case for Nintendo. It’s much more reliant on traditional retail sales than others.

In a bit of bad news for analysts, Nintendo still doesn’t report many player engagement statistics. The company has made up this statistics dubbed “Annual Playing Users” which really just means the number of accounts that logged into a Switch during a given year. Last year, this figure reached 87 million. It recently achieved management’s goal of passing 100 million by March 2022, ending at 102 million.

You’ll notice this isn’t the most descriptive of metrics. It’s very much a parallel to the number of Switch hardware units out there. It doesn’t reveal too much. I’d much prefer to know more about monthly active users or revenue per user. Wishful thinking in this context.

Another area with a distinct lack of information was Nintendo Switch Online, the company’s somewhat rudimentary online offering. There’s no update on subscribers, a figure that hit 32 million back in September 2021. All management said was sales of add-on content for Animal Crossing: New Horizon and Mario Kart 8 Deluxe “grew” this past year.

With Nintendo, I’ll take what I can get.

As Nintendo closes the books on another year, it’s clear there’s currently limited downside on financial performance because it keeps fans purchasing software even when hardware is taking a hit from international semiconductor shortages, limited part availability and higher cost to produce consumer technology. This is the sixth fiscal year for Switch after all, as it will end the 2023 period just after celebrating its 7th birthday.

Looking ahead, the company’s forecast is conservative. I think rightfully so, even with a slate of anticipated titles in successful franchises.

In fact, the forward looking guidance is quite familiar. It’s literally the same exact numbers as last year. Nintendo expects revenue to decline 6% to $14.2 billion, while operating profit should dip 16% to $4.45 billion. As displayed by my earlier charts, these will still be healthy numbers in the perspective of the last decade or more.

“If COVID-19 interferes with production or transportation in the future, this might impact the supply of products. Other unpredictable risks to the development and marketing of products and services also continue to exist,” the company’s press release read. “In addition, the production of products might be affected by obstacles to the procurement of parts, such as the increase in global demand for semiconductor components. The consolidated earnings forecast is based on the premise that we will be able to secure the parts needed for the manufacture of products in line with our sales plans.”

Starting with that hardware guidance for the 12 months ending March 2023 of 21 million, I believe it’s a reasonable expectation. It would be down 2 million from the 23 million achieved this year. Right now, based on chipmaker leaders globally and experts saying shortages may last until even 2024, I’m targeting 20 million to 21 million Switch shipments in my models.

The elephant in the room is: What about new hardware? Will there be an update? Could the company produce yet another revision?

Well, Nintendo’s upper management has made a slight yet important tonal shift on that topic. As recently as last quarter, President Shuntaro Furukawa hinted how there’s no successor in sight because the current Switch is mid-way in its life cycle. Today, during a question and answer session after the earnings press release, he declined to even comment on Nintendo’s next hardware.

Personally, as has been the case for a while, I’m not a believer in a Switch Pro or even any upgrade until the successor which I expect to be a “Switch Part 2” with the same fundamental features and various improvements. I believe Nintendo’s strategy will lean on new releases, catalog software and online packs for at least the next two years. Supply conditions alone mean console generations will be longer than ever, so my current forecast is January to March 2024 for the company’s next hardware.

I’m much more upbeat on the software slate and monetary contribution from this business segment going forward, as Switch owners keep proving they want to buy games. Especially given Nintendo’s track record of mostly quality titles, then partnering with others to enhance its platform especially via independent games. From a unit standpoint during the year ending March 2023, it expects software sales to decline 11% to 210 million. I believe it will be higher.

So, what are the flagship upcoming games that will drive this resilience?

First, those with dates. Nintendo Switch Sports kicked off a couple weeks back. Mario Strikers Battle League and Fire Emblem Warriors Three Hopes are scheduled for June, while Xenoblade Chronicles 3 moved up to July. Splatoon 3 is the latest with an actual date attached, launching in September. These all seem locked in, I’d be surprised if they shift.

Pokémon Scarlet & Violet don’t have a date, but rather “Late 2022” as the window. I’ll assume November, and GameFreak will certainly hit that given the franchise’s usual cadence. Bayonetta 3 is much more in flux with a nebulous 2022 window. I’d be surprised if that doesn’t slip to calendar 2023.

In what’s currently the biggest pending Switch game, and the most annoying to write, The Sequel to The Legend of Zelda: Breath of the Wild was recently delayed to Spring 2023. Could that make this fiscal year? I’m betting March 2023.

Then there’s the curious case of Advanced Wars 1+2: Re-Boot Camp, which was supposed to be out by now yet pushed back in light of the ongoing Russian invasion of Ukraine. That and Metroid Prime 4 are listed as “TBA” in Nintendo’s reporting. I expect the former might launch sooner than latter, while the latter won’t be for a while more and thus won’t contribute to the upcoming fiscal period.

There’s also how Shigeru Miyamoto told everyone on Twitter how the Mario movie was also delayed out of holiday season. Was the plan to have a counterpart mainline Mario release to coincide with the film’s marketing? If so, will that also be moved?

I’m wagering there’s definitely a surprise or two that no one knows about, except those working on them. I am betting on that new Mario title, likely 2D, plus a rejuvenated franchise that no one is expecting.

Well, that’s the rundown on Nintendo’s most recent fiscal year. It’s a lot to cover during an eventful time for the company. What stood out the most? Were you surprised by the results or any of its forecasts? What might management be hiding from us as part of its fiscal 2023 lineup? Is this the year it reveals the Switch’s successor?

I’m always available here and social media for discussion. Be well, and stay safe all!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥112.34.

Sources: Company Investor Relations Websites, IGN, The NPD Group, Nikkei Asia (Image Credit).

-Dom

Xbox Hardware Market Share Gain Propels Microsoft Gaming Revenue to Best Non-Holiday Quarter in Company History

The ongoing Activision Blizzard deal isn’t the only thing making major headlines for Xbox lately.

Microsoft was the first of the “big three” console makers to report this earnings season, which I outline in my latest calendar post, this time sharing its fiscal year 2022 third quarter results covering the period between January and March.

During this time, gaming achieved its best non-holiday sales total ever. While certain parts of the industry cool off, Xbox is at least keeping the fire alive.

Driven by new generation hardware gaining market share plus growth in Xbox content and services, Microsoft generated $3.74 billion in quarterly revenue from gaming, up 6% since last year. That means Microsoft’s Xbox division secured its best revenue ever for a quarter that wasn’t October to December. The prior non-holiday record holder was $3.71 billion back in April to June 2021, a few months after the November 2020 launch of Xbox Series X|S.

This strength bolstered trailing annual sales to reach $16.5 billion for the first time since reporting began. That’s after a record holiday pushed it past $16 billion just last quarter as I wrote about then.

It’s even more impressive considering last year’s stricter pandemic restrictions leading to a strong comparable. According to its report, Xbox Content & Services moved up 4% while Xbox Hardware boosted 14%. Gaming as a whole rose due to growth in Xbox Game Pass subscriptions, first party software (like Halo Infinite and Forza Horizon 5) and Xbox console hardware revenue growth. Third party content was really the sole area of weakness, exhibiting declines year-on-year. What this says is the ongoing Xbox ecosystem play is paying off, supplemented by better inventories at retail.

CEO Satya Nadella even provided a more macro view for hardware right now. “With our Xbox Series S and X consoles, we have taken share globally for two quarters in a row,” Nadella said on the company’s conference call. “We are the market leader this quarter among next gen consoles in the U.S., Canada, U.K., and Western Europe.”

Based on supply driving the cycle due to a global semiconductor shortage, this sort of strength in hardware and market share implies Microsoft was able to secure more components than Sony producing its PlayStation 5. Note that Nintendo Switch was not a part of this statistic, since Nadella’s comments specifically cite the newest console generation.

While the numbers point mostly positive, I have to bring up the usual caveat that Microsoft unfortunately doesn’t share individual profit metrics for its Xbox division. That means purchasing those inputs to produce more retail units could very well have undercut profitability due to higher margins. I’ll shed more light on profit dynamics below the fold.

It’s now time to chart a course towards a more detailed analysis.

As the slides show, Microsoft’s gaming revenue increased 6% to that $3.74 billion during the quarter which was in-line with the company’s forecast. This quarterly result implies nearly $16.5 billion in trailing annual sales, an all-time high, shown via my chart in the above gallery. If combined with Activision Blizzard’s $8.3 billion annual sales and reduced by say $1 billion in double-counting and synergies, it would be between $23 billion to $24 billion.

To provide context, how does this latest top-line result compare to peers? I usually cite Tencent, Sony and Nintendo for these sections, all of which are reporting later in May so I’ll use the latest annualized figures for now. Tencent’s 2021 revenue exceeded $27 billion, maintaining its spot as largest gaming company in the world. Sony’s at $24 billion, suggesting its standing is probably just above Microsoft plus Activision Blizzard’s operations. Finally, Nintendo generated $15 billion.

The largest sub-segment for Microsoft’s gaming business was Xbox Content & Services, which improved a modest 4% to $3 billion in fiscal Q3. That means sales from Xbox Game Pass, software, cloud and any sort of add-on content via its digital storefront account for over 80% of quarterly gaming sales. This was just the second time ever it’s crossed the $3 billion threshold.

While Xbox Content & Services slightly missed the internal growth estimate of “mid to high single digits,” it’s still a success to grow versus a great result last year. I see it as a sign the Xbox brand strategy is stimulating a paying audience.

Disappointingly, Microsoft didn’t share an update on the exact number of Xbox Game Pass subscribers. The latest figure is 25 million from back in January. I’d imagine this was due to seasonality, where it picked up after the holiday and has grown only incrementally since then. Especially given a lack of major exclusives or even third party partnerships launching into the service other than Ubisoft’s Rainbow Six Extraction.

Instead, Microsoft highlighted new information specifically on cloud gaming usage. Nadella said 10 million people have streamed games remotely since the feature kicked off in beta during November 2019 then was formally introduced to Xbox Game Pass Ultimate subs in September 2020. While cloud is still niche in the scheme of things, hitting this sort of milestone shows there’s at least some level of growing interest.

“Our Game Pass library now includes hundreds of titles across PC and console, including more games from third party publishers than ever before.” Nadella noted. “Billions of hours have been played by subscribers over the past 12 months, up 45 percent.”

Lastly, he said Azure gaming revenue increased 66% during the current fiscal year to date. These sorts of statistics on service, cloud, streaming and the like fit with the company’s gaming mantra of allowing people to play on various devices. It eases the burden on hardware shipments, which I’ll cover next.

The second sub-segment within gaming is Xbox Hardware, which exhibited the better growth during January to March. Sales here moved up 14% to $728 million. That’s the second best non-holiday result since the company began reporting splits. Microsoft didn’t previously share internal guidance for hardware, yet CFO Amy Hood said on the call that it exceeded expectations.

Company slides highlight continued demand for Xbox Series X|S underlying this change, however clearly it’s capped by supply conditions. Based on evidence from both regional tracking firms and retail channel checks, Xbox Series S in particular is showing better availability at least.

Of course, the question on everyone’s mind is: how many units of Xbox Series X|S has Microsoft shipped now during its fifth full quarter on market? Last quarter, I mentioned the estimate from Daniel Ahmad, Senior Analyst at Niko Partners, being above 12 million. While revenue growth doesn’t directly translate to unit sales trajectory, I’d guesstimate the family at upwards of 14 to 14.5 million globally. As a reference, last count for Sony’s PlayStation 5 was 17.3 million.

We’d know for sure if Microsoft was more transparent. (Wishful thinking!)

Fitting with the theme of market share gains and increased inventories was The NPD Group’s recent monthly report on U.S. games industry spending. As I covered in my article, Xbox Series X|S was the leading console for both March and the first quarter domestically by dollar sales. It’s certainly attracting buyers, when there’s stock on hand.

“Coming to the end of a good week,” wrote CEO of Gaming Phil Spencer on Twitter. “Microsoft earnings were a nice moment for Xbox, it’s always great to hear Amy [Hood] and Satya talk about the progress.”

Now, here’s yet another important caveat related to profitability. We don’t know if Microsoft is making a profit on either model right now. In fact, last year during the Epic v. Apple trial, Head of Xbox Development Lori Wright specifically said the firm sells hardware at a loss. Which is consistent with historical data and anecdotes across the industry, as consoles are known as a loss leader and a means to have people spend on software, and now subscriptions or other content.

Comparatively, Sony said it’s now turning a profit on each PlayStation 5 standard edition it ships. Without a better indication of cost impact, it’s difficult to make a direct comparison.

Stepping back to briefly touch on Microsoft’s general results, the company generated over $49 billion in quarterly sales which is 18% higher than last year. Operating income exceeded $20 billion, up 19%. Both top-line and earnings-per-share came in above analyst estimates.

Intelligent Cloud as a segment showed the most growth, jumping 24% in Q3. Microsoft Cloud revenue improved 32% to over $23 billion. Office Commercial products and cloud moved up 12%, while LinkedIn sales rose 34%.

Gaming is part of the More Personal Computing business for Microsoft, which rose 11% to $14.5 billion. This means Xbox comprised 26% of quarterly segment sales, down from 31% during the holiday quarter between October and December 2021.

In terms of a glimpse into profitability for this segment, gross margin percentage declined “slightly” last period. That’s because of a 17% increase in operating expenses, attributed to gaming, search, news advertising and Windows marketing costs.

Essentially, gaming is less profitable than other areas when investing heavily in console manufacturing and external deals. This also reflects the broader trend of inflation, impacting input pricing. The more it takes to make a product, the lower its margins. Right now, the implication is there’s higher cost in both producing consoles and making the types of deals required for Xbox Game Pass. Without exact data on how much profit is made per retail unit sold or for gaming as a whole, I have to make these kinds of inferences.

Considering gaming sales rose 50% this time last year, beating total growth estimates in the latest quarter was a great showing on the revenue side. That $3 billion figure for Xbox Content & Services in particular supports the brand’s reinvigorated move towards keeping players in a more accessible ecosystem as opposed to a singular piece of hardware. There are still indications that profitability is being hit by input availability and cost, so that’s worth keeping in mind especially moving into the second full calendar year of Xbox Series X|S.

Looking ahead, next time Microsoft will report fourth quarter and annual results for fiscal 2022.

When it comes to gaming, CFO Amy Hood laid out somewhat bearish internal guidance for April to June as the company anticipates lower sales, echoing a trend seen industry wide as a reversion towards more normalized spending habits.

“We expect revenue to decline in the mid-to-high single digits driven by lower engagement hours year-over-year as well as constrained console supply,” Hood said. “We expect Xbox Content & Services revenue to decline mid-single digits though engagement hours are expected to remain higher than pre-pandemic levels.”

Note: She didn’t provide formal guidance on hardware results.

Digging into that first estimate, let’s assume an 8% decline. This would lead to fourth quarter gaming revenue of $3.4 billion versus the prior amount of $3.7 billion. When aggregating for the full year, it would still be an increase from $15.4 billion to $16.2 billion. That implies we’ll see a fiscal year sales record for Xbox despite anticipated weakness in the final quarter.

Then, if Xbox Content & Services dips say 5%, it would generated $2.8 billion in the fourth quarter which would be the lowest result since the pandemic began.

We’ll have to see how it plays out for Xbox over a three month span where it’s going to reveal a lot more about future titles than actually launch many on the first party side. On June 12th, Xbox & Bethesda will host its annual summer showcase where I expect to see more about Starfield, Redfall, Senua’s Saga: Hellblade II, Avowed and hopefully the Indiana Jones project.

Thanks everyone for stopping by and making it this far. Be safe and well!

Comparisons are year-over-year unless otherwise noted.

Sources: Company Investor Relations Sites, The NPD Group, Xbox Wire, Yahoo Canada (Image Credit).

-Dom

Earnings Calendar Apr & May 2022: Gaming, Media & Tech Companies

It’s April, which means a lot of things. The weather is feeling nicer here in the States, Uncle Sam has looked over our tax bills, many celebrated Easter, plus Ramadan is still underway. Way more important than any of those, naturally, is another earnings season!

As is tradition here, we’ll be celebrating the season with another list of earnings dates across gaming, media and technology sector companies. I like to think it’s the most comprehensive list on the internet covering these sectors, now featuring over 100 public companies.

It’s still best efforts of course, and certain exact dates aren’t known yet. I’ve marked those accordingly with general windows based on historical timing.

April to May is always a busy one because a number of fiscal years end in March, in which case we hear both fourth quarter and full-year results. Either that or it’s the first quarter of a brand new fiscal year, giving an indication of where a company is trending.

Read below the fold for a handy Google Sheets document and three major companies to watch in the next few weeks. I’ll be covering certain results here at the site, and even more on social media.

Have a great season all, be safe and well!

Working Casual Earnings Calendar Apr & May 2022: Gaming, Media & Tech Companies

Sony Corp: Tuesday, May 10th

In a couple weeks, Sony Corp will report its full year 2021 results. On the radar for me is the Japanese tech conglomerate reporting updated PlayStation segment financials, PlayStation 5 hardware shipments, subscription numbers for its services plus engagement statistics. At present, PlayStation 5 global shipments total 17.2 million which is lagging its predecessor at this point in the life cycle. Based on regional data this quarter, I expect hardware shipments for Sony have been impacted most by supply constraints among the “big three” console makers. The big news lately is the rebranding of its PlayStation Plus subscription, which begins in June. I’d like to hear anything from executives on that topic, then a long shot of management mentioning more on their PC strategy for its published software titles.

Ubisoft Entertainment: Wednesday, May 11th

Major third party publisher Ubisoft also posts annual results in mid-May, and it’s an important one. With consolidation in the games industry ramping up, the French company is one many “insiders” claim as an acquisition target, even after fending off Vivendi a couple years back. Now, “deal talks” are constant in business especially for private equity firms. That’s the sole purpose of their existence. So I don’t know if there’s any fire under that smoke, yet anything is possible these days. There’s also the past reports of rampant misconduct and harassment, which has been somewhat overshadowed by Activision Blizzard’s woes and lawsuits. While Ubisoft has moved to fire certain bad actors and improve conditions, Yves Guillemot is still top dog and these things happened under his watch. I want to hear more about steps in making it a better place to work. On the financial side, it should present on Tom Clancy’s Rainbow Six Extraction (which has been quiet and I wonder if it under-performed), catalog title impact notably Assassin’s Creed and Far Cry. Plus, expect the usual update on its pending slate of releases which include Mario + Rabbids Sparks of Hope, Avatar: Frontiers of Pandora and, allegedly, Skull & Bones.

NVIDIA Corporation: Wednesday, May 25th

Last on my list here of stocks to watch is NVIDIA, one of the later companies to report during May. This will be its fiscal 2023 first quarter offering. The chip maker and gaming processor provider is often referenced as a bellwether for semiconductor progress and availability across gaming and related industries. Last quarter, it showed massive growth in revenue and profit, the latter nearly doubled year-on-year, and analysts are anticipated over 40% top-line improvement for January to March results. It’s benefiting tremendously from the global semiconductor shortage because it’s scooping up as many as it can, there’s pent up demand for its graphics processing units (GPUs) and enterprise products plus PC buying is still high. It’s almost less about what NVIDIA has done and more where it expects to go with its forecasts. Many experts expect the chip shortage to continue in the foreseeable future through next year! Not to mention this is the first quarterly report since NVIDIA stepped away from its $40 billion bid for Arm Holdings in February due to “regulatory challenges,” which means it’s flushed with capital for investment both organic and external.

Sources: Company Investor Relations Websites.

-Dom

Nintendo Switch Ships Over 100 Million Lifetime Units, Passing Wii & PlayStation During Nintendo’s Best Holiday Quarter Since 2009

While it didn’t announce any blockbuster deals or major investments like certain industry peers, Nintendo did just have a heck of a holiday.

That’s based on its fiscal third quarter announcement shared today out of Japan, where it passed a major milestone for its Switch hybrid console plus achieved its best Q3 results in over a decade.

A couple quick reminders. Nintendo’s filing is for the nine months between April and December 2021. Though I’ll dig into quarterly and trailing annual figures later in this piece. Then there’s the difference between sell-in versus sell-thru metrics. The former is shipment to retailers, while the latter is how many consumers ended up buying. Most of the talk here is shipments, unless specifically noted.

With those ground rules established, the big headline is how Nintendo Switch has officially passed 100 million units sold-in lifetime, now totaling 103.54 million. Fewer than five years after launch, this figure already exceeds the lifetime sales of both Nintendo Wii at 101.63 million and the 102.49 million of the original Sony PlayStation. Which is above all but the most bullish of analyst predictions, including mine. As upbeat as I was on Switch in 2017, I didn’t think it could attain Wii status.

Well, it has. Which means Switch is now Nintendo’s best-selling home console of all time. (Even if it’s also a handheld. Is that cheating?)

Considering this environment, moving 10.67 million Switch in the holiday quarter is an accomplishment and reflects demand for the latest OLED iteration. Still, Nintendo did revise its annual hardware forecast downward a bit. The company now expects 23 million in the year ending March 2022, off from 24 million last quarter which was already lower than original guidance of 25.5 million. Certainly reflects where production is at from an input availability and pricing angle. This guidance implies just over 4 million will ship in this current quarter.

On the first party software side, Nintendo had three major software releases with early success especially in a historical context.

Starting in early October, Metroid Dread has.. rocketed to 2.74 million units in just under three months. This is an incredible mark within the franchise, traditionally more a critical darling than commercial mover. For context, that’s almost equivalent to lifetime sales of the best-selling Metroid game in 2002’s Metroid Prime, at last count hit 2.84 million. It’s already above the original, which debuted on Nintendo Entertainment System in 1986 and accumulated 2.73 million lifetime.

Infamous party game and relationship killer Mario Party Superstars released in late October, reaching 5.34 million copies in its debut quarter. That’s slightly above Super Mario Party, which started at 5.3 million back in 2018. Prior to that, 2012’s mainline Mario Party 9 on Nintendo Wii hit 2.24 million in a couple quarters.

The biggest seller of Nintendo’s holiday period was, predictably, Pokémon Brilliant Diamond & Shining Pearl. The latest remake in the popular monster catching series amassed shipments of 13.97 million since November, immediately becoming the 9th best-selling title on Switch to date. Its launch quarter fell between two other Pokémon titles on Switch: Sword & Shield at 16.06 million in 2019 and the 10 million of 2018’s Let’s Go Pikachu & Eevee.

For a quick financial overview, Nintendo reported single-digit sales and operating income declines since the highs of last year’s same nine-month time frame. Net sales in the last three quarters dipped 6% to $11.89 billion, while operating profit lowered 9% to $4.26 billion. For perspective, that first number is actually the third best Q3 reported in company history from a sales standpoint.

Alongside this, the company upped annual net sales guidance 3% and operating profit by almost 8% for the year ending March 2022. That positivity reflects this stellar holiday quarter plus a more optimistic software forecast, both of which I’ll recap soon.

“Switch is just in the middle of its lifecycle and the momentum going into this year is good,” said Nintendo President Shuntaro Furukawa on the firm’s conference call. “The Switch is ready to break a pattern of our past consoles that saw momentum weakening in their sixth year on the market and grow further.”

I’ve got a lot to cover. Get cozy and read on!

Based on Nintendo’s reporting of the year so far, we can back into quarterly figures. During the three months ending December 2021, revenue reached $6.27 billion or 10% higher than prior year. Quarterly operating profit grew 10% as well, to $2.27 billion. One of the charts above shows these tracked over time. This was the best quarterly sales since $6.3 billion in 2009. Operating profit hasn’t been this high since the $2.66 billion back in 2008. We’re talking exceptional figures during the holiday period, all the more impressive given input scarcity on the hardware side.

The other two charts above show trailing 12-months i.e. the year ending in December going back in time. As of this latest update, Nintendo’s annual revenue closed in on $15.1 billion. That’s down less than a percent. Taking expenses into account, operating profit for the last year declined 3% to $5.33 billion. This is really more indicative of strength earlier during 2020 when Animal Crossing: New Horizons was everywhere rather than recent weakness.

In terms of regional split, Nintendo’s figures showed 43% from The Americas which was up from 41%. Europe accounted for almost 27% and Japan contributed 21%, versus last year when these were 26% and 22% respectively.

On the product category front, Hardware contributed more than half of sales at 53% of the total. Retail software was up next at 29%, while digital software comprised 9% of the pie. Subscriptions and Add-on Content then Mobile and IP Licensing filled in the remainder, at 7% and 2% respectively. Really this shows the continued importance of retail, both hardware and software, for Nintendo in particular as digital remains a much lower portion of its business than certain peers.

Speaking of, now that all of the “big three” have reported this season, it’s time for a final comparison. This time around, we’re also throwing in Tencent in recognition of its massive significance as the world’s largest gaming firm by revenue. As a reminder, Nintendo’s latest annual sales totaled $15 billion. This is very close to Microsoft at $16.28 billion, which was a record for Xbox. (Note this increases drastically when accounting for a $8.8 billion contribution from the pending Activision Blizzard acquisition.) Sony’s PlayStation division generated $26.66 billion and Tencent’s latest number, albeit back from September, was the highest at $27.3 billion. And it will be higher soon. Essentially, Nintendo’s annual sales are still the lowest of these however it’s actually much more profitable than PlayStation at least. Unfortunately, Microsoft doesn’t disclose profit from gaming.

Focusing on Nintendo’s major hardware segment, shipments were down 21% in the nine months ending December to 18.95 million. Within that, 11.79 million were base Switch while 3.17 million were Switch Lite. The new Switch OLED Model racked up 3.99 million sales in its debut quarter. Compare that to base model in 2017 of 2.74 million and Switch Lite’s 2 million in 2019. Technically both the original and Lite launched later in the quarter, so it’s not a perfect alignment. What this does indicate is the impact of newer iterations on ongoing sales, and buyers doubling up with multiple Switches per household.

As shown in one of the gallery slides above, Nintendo also shared statistics around sell-thru to consumers with Nintendo Switch moving past 100 million to date. Which means most of its shipments are going to buyers. This fiscal year is shaping up to be its second best ever, down only from the highs of last year during more restrictive quarantines.

“The outlook for semiconductors and other components has remained uncertain since the start of this fiscal year and distribution delays remain unresolved, so production and logistics continue to be impacted.” said Furukawa. “But even though product shortages in North America have continued, particularly since Black Friday, total global sell-through for April through December reached its second-highest level ever.”

This consistency of hardware purchasing is reflected in Nintendo Switch being the best-selling console of 2021 in the United States, United Kingdom and Japan according to local industry tracking firms. That’s during a battle with the initial year of a new console lineup for its competitors in Xbox and PlayStation, which are certainly feeling the sting of supply plus have higher price points on average.

Flipping over to Switch software, which made up that 38% of Nintendo’s dollar sales, the company said units shipped in the nine months ending December grew 2% since last year to 179.29 million. 85.41 million of that happened in the holiday quarter alone. Lifetime, software for Switch is at 766.41 million. Comments from the earnings call imply around half of software sales right now are catalog titles from prior periods.

From a shipment standpoint, there’s currently 29 “million-selling” software titles on Switch during this current fiscal year. That’s the number of titles shipping more than a million copies in this time frame. 22 of those are Nintendo first party, while 7 are from third party publishers. This time last year had the same number overall at 29, with 20 of them from Nintendo and the rest by external teams.

At the top end, Mario Kart 8 Deluxe is still the best-selling Switch title ever by a wide margin and driving those catalog stats. It actually just had its best holiday, shipping 4.61 million units towards a staggering lifetime figure of 43.35 million. This is a game that originally launched on Wii U almost eight years ago! With this sort of momentum, and still being bundled with Switch, unfortunately I don’t see a new Mario Kart until the next full-blown Nintendo console.

Animal Crossing: New Horizons maintains second place for Switch best-sellers at 37.62 million. That’s literally more than every prior Animal Crossing game has done combined. Nintendo said this includes 10 million units in Japan alone, beating out the 6.81 million units of the classic Super Mario Bros. to take the crown as the country’s top-selling video game to date.

Rounding out the Top 3 is The Legend of Zelda: Breath of the Wild selling 4.37 million this past holiday to pass 28.5 million. Another mover and shaker included Ring Fit Adventure stepping firmly into the Top 10 on Switch at 13.53 million units, flexing its muscle by shipping 1.32 million in the quarter.

Luigi’s Mansion 3 has now surpassed the 11 million threshold, settling at 11.04 million. Both September’s WarioWare: Get it Together! and Big Brain Academy: Brain vs Brain, a remake released in December, passed the million mark at 1.24 million and 1.28 million respectively. Finally, June’s Game Builder Garage snuck onto the million sellers list at 1.01 million to date.

As for copies getting to consumers, Nintendo said October to December 2021 was the single best quarter for first party global sell-thru since 2017’s Switch launch. Putting it plainly, both new titles like Pokémon and evergreen experiences like Mario Kart and Animal Crossing tag-teamed Switch’s best software holiday in its five years on market. Sounds like a happy holiday for the publisher and its employees, indeed.

Before I go, I’ll clean up some additional flavor text and chat about the near-term future in the context of Nintendo’s latest filing.

Within software, Nintendo said digital sales were effectively flat year-over-year at roughly $230 million during the first nine months of this fiscal year. Digital accounted for just over 40% of software sales for its dedicated platforms. For the holiday quarter, digital actually rose 31% to $100 million. This was attributed to an increase in downloadable versions of its titles, naturally!

One area Nintendo doesn’t share a lot is engagement statistics, skewing more towards the traditional unit sales metric. That said, it’s intriguing to see the figure of 98 million “annual playing users” for Switch in the calendar year 2021. That’s up from 80 million in 2020. Executives said the goal is to expand past 100 million users in the upcoming fiscal year.

This represents the number of users who play Switch software at least once during the calendar year, using data from Nintendo accounts. It’s certainly trending alongside the hardware trajectory, though it does show that the people buying them are at least turning them on. I’d like to know how many hours they are playing, and even further what the average revenue is per user. (Wishful thinking.)

There was minimal mention of its Nintendo Switch Online service, which at last count had 32 million paying subscribers. While it didn’t reveal a new user base figure, executives did say the following alluding to some sort of digital record:

“Sales grew steadily for Nintendo Switch Online, which launched a new paid membership service last October, add-on content like Animal Crossing: New Horizons Happy Home Paradise and download-only titles, with digital sales for the same period reaching a record quarterly high.”

Peeking ahead into this January to March 2022 quarter, the final period of Nintendo’s fiscal year, the company is upbeat on its dollar sales, profitability and software momentum as it increased guidance for all of these.

The most aggressive forecast raise was a 10% upward revision for Switch software unit sales. In stark contrast to its lower hardware forecast, Nintendo thinks Switch unit sales will end at 220 million for the year, up from 200 million.

Part of that is Pokémon Legends Arceus, which launched in late January to solid critical acclaim. And, even more importantly for the bottom line, early commercial success. Even if that’s based on somewhat vague language from executives on the conference call. I mean, it’s a brand new Pokémon game with a fresh take on the formula. It’s going to do extremely well. The only wildcard is how it’s a single title as opposed to the dual release model used often by the franchise.

Rounding out the fiscal year for first party will be Kirby and the Forgotten Land in late March. While it won’t be the commercial juggernaut of Nintendo’s more popular brands, I could see it following Animal Crossing: New Horizons as a breakout seller in its respective series. Just not nearly to the magnitude of New Horizons, of course.

Nintendo’s only area of bearish guidance was Switch hardware, down that 4% to 23 million units. My prior estimate was 25 million, which I’m formally reducing to 23.5 million after monitoring the impact of both part availability and input cost. I really do see the firm beating on all counts here, especially operating profit above $5 billion which I believe would be its second best annual figure outside of last year’s high.

When asked about industry consolidation and potential acquisitions, Nintendo gave the answer one would expect given that it’s not nearly as aggressive as competitors. “Our brand was built upon products crafted with dedication by our employees,” said Furukawa. “And having a large number of people who don’t possess Nintendo DNA in our group would not be a plus.”

Intriguingly, management’s reply to a query around the Metaverse left open the possibility for Nintendo to be more forward-thinking than usual. According to a report collated by VGC, executives have interest and see potential however wonder what kind of “joy” Nintendo can provide.

Well, I’d say Nintendo’s solid holiday quarter results are indicative of where it’s at within the broader industry in how there’s uncertainty around hardware that’s being offset by growth in software and legacy titles. Generating its best fiscal Q3 in a number of years while facing headwinds from supply proves the resilience of its formula combining memorable experiences and high-quality IP.

What Nintendo lacks in online capability and ongoing service it makes up for with games that never go out of style and appeal to a huge audience of all ages. Throw in content here and there for Animal Crossing. Toss Mario Kart in every bundle. Launch collections of Mario Party and WarioWare mini-games. Remix the same Pokémon that people have always loved. Sprinkle in the fastest-selling Metroid of all time.

This, along with innovative hardware that supports multiple ways to play especially on the go and prompts people to purchase more than one version, is a recipe for Nintendo’s incredible success during the Switch generation. Which, apparently, is far from over.

What stood out for you in Nintendo’s latest report? Anything I might have missed? Any questions on the numbers? Give me a shout here or social media.

Until next time, thanks very much for reading and be safe all!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥111.06.

Sources: Company Investor Relations Website, Famitsu, GSD, The NPD Group, Video Game Chronicle.

-Dom

PlayStation 5 Shipments Reach 17.3 Million as Sony Reports Best Third Quarter PlayStation Operating Profit Ever & Lowers Hardware Forecast

In what’s continuing as the busiest year in gaming news ever, Sony is back after announcing its $3.6 billion acquisition of Bungie to this time reporting its fiscal year 2021 Q3 earnings results.

An eventful one, it was.

In addition to providing updated figures on PlayStation hardware, software and engagement, Sony’s results showed that the gaming division recorded its second best quarter ever for top-line sales. Quarterly revenue exceeded $7.15 billion, which is second only to last year’s $7.77 billion.

Even further, operating profit rose 15% to $817 million in PlayStation’s single best operating profit for a third fiscal quarter. This is the coveted holiday period between October and December, which is most significant for consumer tech companies because of peak demand in various parts of the world. This record profit result and strong growth happened against a high comparable last year around the launch of PlayStation 5.

Right now, and in the immediate future, we know it’s availability dictating a lot of where the business is going. So these results are wholly impressive given this environment, which is continuously supply-constrained and facing delays on the software front. Behind the resilience is add-on content, an expansion in PlayStation Plus memberships plus a shift towards digital software.

On the hardware side, lifetime PlayStation 5 console shipments since launch are now 17.3 million after moving 3.9 million in this latest quarter. When compared to PlayStation 4, the brand’s fastest-selling console, that was at 20.2 million by this point. Its second holiday quarter was a strong 6.4 million, which is 2.5 million above PlayStation 5. It’s clear the current generation is starting to lag in a historical sense, facing various outward pressures amidst the semi-conductor crisis.

Oh, I guess this also means PlayStation 5 has officially passed the 13.56 million units that Nintendo’s Wii U reached across its lifetime. Add it to the list.

Because of supply concerns, Sony reduced its full year annual hardware guidance for PlayStation 5 to 11.5 million units. Previously it expected in-line with PlayStation 4 at upwards of 14.8 million. This implies only 2 million more PlayStation 5’s shipped in this quarter ending March 2022, which would also be below PlayStation 4’s 2.3 million in the corresponding period.

“Limitations on the supply of components are expected to continue going forward, but we are continuing to exert every effort to meet the strong demand for PlayStation 5,” said Sony’s Chief Financial Officer (CFO) Hiroki Totoki.

Here’s a full breakdown of the overall results plus PlayStation business segment, then the various supplementary statistics Sony shared. There’s even more color around the Bungie acquisition later in the article. Numbers, charts and more below!

For the company as a whole, both sales and profit metrics experienced double-digit gains and set new all-time highs for a fiscal third quarter.

Revenue increased 13% to $26.66 billion, while operating profit rose an impressive 32% to nearly $4.1 billion. Major growth in Pictures and Imaging & Sensing Solutions business segments boosted these historic results.

Drilling into Game & Network Services (G&NS), aka the PlayStation business, this is still Sony’s leading category by revenue at nearly twice as much as the next contributor in Financial Services. The PlayStation brand accounts for 27% of Sony’s sales and 20% of aggregate profit.

I’ve already mentioned the $7.15 billion in revenue, down 8% since last year, and $817 million in operating income during third quarter for G&NS. Slides from the company’s presentation cite declines in hardware, peripherals, first and third party software overtaking the impact of exchange rates on the sales side. Alternatively, lower expenses and better margins for PlayStation 5 spurred profit growth.

Those that have read my recap articles know what’s coming. Let’s frame these quarterly figures in context. There’s charts in the above gallery displaying trailing 12-month time frames for each of these.

Over the last four fiscal quarters, which is also calendar year 2021, PlayStation sits at almost exactly $24 billion in revenue. While down from the all-time high of $24.67 billion three months ago, it’s still the second best on record. Not too shabby. For operating profit, the most recent annual number is $2.56 billion and a slight increase over last quarter’s $2.45 billion.

The dip in trailing revenue makes sense, given the slowdown in hardware units and nearly every sub-category within the gaming business. The profitability bounce-back is more noteworthy, in my opinion. It reflects that amidst slowing production of hardware, there’s lower costs bumping up margins giving good impact to PlayStation’s bottom line.

The last of my charts in the gallery shows every product category within the gaming unit and where it’s been in recent quarters. My main observations are it’s the best time for digital software, the second best quarter for add-on content and even hardware, the latter two previously set during holiday 2020. There’s also the slow and steady upward trajectory of Network Services, proving that online play and the related software perks of PlayStation plus are keeping players in the ecosystem. The rumors around a potential combination of services into code-name “PlayStation Spartacus” would bolster this particular slice. I expect this trend-line to continue.

Now that Sony has reported, let’s quickly compare to industry peers. Pulled from my recent article on Microsoft’s results, here’s how it plays out. Sony’s trailing 12-month revenue of $24 billion still comes in below that of Tencent’s gaming businesses, generating $27.3 billion as of September 2021. Microsoft’s record $16.28 billion from annual Xbox sales is up next. If combined with Activision Blizzard, it would be $25.33 billion and actually could exceed Sony’s latest figure. Nintendo reports tomorrow, so I anticipate this figure to rise, however its latest for now is $14.7 billion. Keep in mind there’s impact from exchange rates of course plus Tencent won’t report until next month, though I like to show how each stacks up on a relative basis.

Beyond the fancy financials, Sony provided various updates on players, software and services within its PlayStation ecosystem.

Its online service PlayStation Plus tallied up 48 million subscribers as of December, slightly higher than the 47.4 million at end of 2020. On the flip side, Monthly Active Users (MAUs) across all PlayStation Network declined to 111 million from 114 million last holiday.

This implies that while paid users for PlayStation Plus are consistent, people are spending less time playing. No doubt impacted by last year being the launch of a brand new console, higher availability of vaccines recently plus more open economies. Gaming is still a go-to entertainment, of course. It’s just that folks are spending time on different media.

On the conference call, Totoki echoed this sentiment on engagement. “Total gameplay time of PlayStation users in December 2021 was 20% lower than the same month of the previous year, which was immediately after the release of the PlayStation 5,” he said. “But gameplay time increased approximately 7% from December 2019. For a quarter in which there were only a few major titles released, we think this was solid performance.”

I tend to agree, primarily because Sony is monetizing its base even as they spent less time gaming.

Full-game software sales also showed a downward trend year-on-year, declining to 92.7 million from the recent high of 104.2 million in fiscal 2020 Q3. First party title unit sales were 11.3 million, or 12% of the total, compared to 19 million and 18% of the total prior year. Partially reflective of the limited holiday lineup on the exclusive side, while major seller Marvel’s Spider-Man: Miles Morales hit market last year.

Consistent with digital software being its highest ever from a product category revenue standpoint, the split of digital full game sales is increasing. 62% of all software was digital download, compared to 53% last year. All three quarters this fiscal year have been at or above this same 62% figure. Basically, between 6 to 7 out of every 10 software units sold are now downloaded.

Because of known limitations on the PlayStation 5 production side, Sony is still chugging along manufacturing PlayStation 4 consoles. It shipped 200K of its prior generation box during the quarter ending December, resulting in lifetime sales of 116.9 million. At this rate, it might someday pass Game Boy’s 118.69 million. In a few years, hah.

Projecting into the future, it’s a challenging environment for the PlayStation from a hardware perspective though there are plenty of opportunities on the software and services side.

We’ve talked to death about high demand, low supply. My economics professors would be so proud!

Production and inventories aren’t getting better, as clearly displayed by PlayStation 5’s vast under-performance during a holiday quarter when unit sales have historically been much higher. Consistent with Sony’s formal guidance reduction, I’m lowering my estimate for PlayStation 5 shipments in the year ending this March. Last quarter, I was ambitious at 15 million. Even then I said confidence was waning. Now, I’m down to 12 million which would mean January to March has to reach 2.5 million.

Intriguingly, Sony lowered its fiscal year revenue outlook for the G&NS segment to $24 billion from $25.5 billion yet decided to boost its operating profit target from $2.86 billion to over $3 billion. This is a telling turn of events, signaling further cost reductions that will outpace lower dollar sales for PlayStation. Manufacturing less consoles does have the benefit of lower expenses, I suppose!

The last fiscal quarter ending next month will ramp up on the first party software side, as both Horizon Forbidden West and Gran Turismo 7 are slated to launch. There’s also third party console exclusives like Sifu and now Ghostwire Tokyo, announced today for March 25th. While releases like this won’t drive console sales as much as in the past because of inventories, it will benefit software sales, notably that digital content segment, plus player time investment.

Finally on the topic of acquisitions, Sony’s executives naturally did not comment much when asked about Microsoft’s industry-changing $68.7 billion purchase of Activision Blizzard and if they had plans to snatch up any large publishers.

They did, of course, talk about their major purchase in Bungie. While I didn’t dedicate an entire piece to it, I did want to mention Sony providing additional flavor around the deal, the resulting relationship and how it fits with the future of PlayStation as a brand.

Bungie, creators of Halo and makers of my beloved Destiny, was one of the largest private independent studios in the industry at over 900 employees. To me the main reason to me why it made a deal with Sony, as opposed to a traditional publisher or a software and cloud company like Microsoft, is the trans-media potential of crossover with film and television plus the opportunity to remain mostly independent.

On Sony’s side of the bargain, the upside is huge. One glaring weakness in PlayStation’s portfolio is a lack of live service and ongoing game expertise, which is crucial in 2022 going forward. Bungie provides that, both from a business model and technology standpoint. Along these lines, execs claims global revenue in the games industry from live services have been growing at an annualized rate of 15% since 2014 or the year Destiny launched.

“We intend to utilize these strengths when developing game IP at the PlayStation studios as we expand into the live game services area,” Totoki pointed out. “Through close collaboration between Bungie and the PlayStation Studios, we aim to launch more than 10 diverse Service Games by the fiscal year ending March 31, 2026.”

Alongside this movement towards games-as-a-service, Totoki also discussed the mid-term plan to grow first party software dollar sales to double its current amount by fiscal 2025. Between this internal acceleration of exclusive IP, pushing more into ongoing games with the help of Bungie’s knowledge plus the potential for a Xbox Game Pass-like service in PlayStation Spartacus, Sony’s gaming approach is looking more balanced than it’s ever been.

It does seem to be a good compromise and united.. destiny for both companies.

That’s a wrap on a mostly successful quarter for Sony, especially as a whole with those record results, even considering the lag in PlayStation 5 shipments and downward revision for certain items in the PlayStation division. Other areas are picking up the slack, proven by the record profitability exhibited within its gaming business. While its forecast is lighter for hardware and gaming sales, that operating income guidance increase is reassuring.

Did anything stand out to you in the report? What was the most surprising part? Do you agree with my forecast for hardware or are you more conservative like Sony’s management team? Feel free to drop a comment here or on social media.

Be safe and well. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on the reported conversion: US $1 to ¥113.7.

Sources: Company Investor Relations Websites, LEGDAY on Twitter (Image Credit).

-Dom

Earnings Calendar Jan & Feb 2022: Gaming, Media & Tech Companies

The news cycle is busy and the very first earnings season of 2022 is now underway!

Here at the site, each quarter I organize a full calendar for various gaming, technology and media stocks around the globe to track financial reporting dates. It started as something I did to keep myself organized; it’s now grown into the most popular of all my regular posts. Thanks to everyone who uses it every few months!

For a quick reminder of how it works, the calendar is available in image form above. This time around instead of a Google Doc, I’ve transitioned to a Google Sheets link for easy access. Let me know if you have any trouble accessing it. It’s sorted by date based on the local time zone for each company. Using Nintendo as an example, its timing will be based on when it reports around Japan business hours. Why? Well, mainly because that’s what it shares at its investor site.

You’ll see that some of them aren’t final. In those cases where it’s unclear, I try to give an estimate or point out if it’s a future month. Mainly April or later, as certain companies report off schedule or only semi-annually. In the past I’ve even updated it as the dates near. That tends to be a fair amount of work and constant monitoring. So, now I do the best I can with the information at my disposal around when I post. Lately I’ve included fiscal period as an additional reference item.

I’m biased of course, though I highly recommend bookmarking this page for future use. It’s not a comprehensive list, but at almost 100 entries, it’s the closest thing you’ll find online covering these sectors. Check out below the link for three of the biggest stories this season. Enjoy!

Working Casual Earnings Calendar Jan & Feb 2022: Gaming, Media & Tech Companies

Microsoft & Activision Blizzard: FY 2022 Q2, Tuesday, January 25th & FY 2021 Q4, Thursday, February 3rd

I’d say this one is a no brainer, given how Microsoft recently announced its intention to purchase Activision Blizzard for a staggering $68.7 billion. Each of these companies independently report within the next week or so, and I mostly expect a somewhat boilerplate commentary around the pending acquisition and its suggested closing date during Microsoft’s fiscal year ending June 2023. We already know Xbox Game Pass has 25 million subscribers and that the Xbox Series X|S is the “fastest-selling” in brand history. And how Call of Duty is still generating revenue like hot cakes. I’m mostly intrigued by the potential for analyst questions around the deal, poking and prodding on items like synergies, exclusivity, unionization, intellectual property, redundancies (layoffs?) plus Xbox Game Pass offerings. I’d also love to hear Phil Spencer on today’s Microsoft earnings call, usually reserved for topics like cloud and enterprise.

Meta Platforms Inc: FY 2021 Q4, Wednesday, February 2nd

The Company Formerly Known as Facebook has its first earnings announcement since the general Meta rebranding and restructuring of its financial segments next week. Yes, I expect a lot of buzzword talk around The Metaverse and what the company envisions that to be. I’m primarily curious about two topics: the company splitting out Reality Labs as a separate business unit and Mark Zuckerberg potentially paying anything other than lip service to government questions and traditional media coverage around privacy, safety and how its platforms are used for dangerous activities. An investor announcement yesterday covered what to expect for the first: current and recent historical performance for augmented and virtual reality, a business that includes Quest headsets that have seen consistently increasing demand especially last year. I don’t really expect much on the latter other than general references, unfortunately.

Take-Two Interactive & Zynga: FY 2022 Q3, Mon, February 7th & FY 2021 Q4, Early February

Before the aforementioned marriage between Microsoft and Activision Blizzard one-upped it, Take-Two’s pending purchase of Zynga for $12.7 billion was going to be the largest of all time in the games industry. The market initially reacted quite violently in terms of a decline in Take-Two’s share price, implying that it’s late to the party in its mobile expansion and it vastly overpaid for the Farmville creator. Still, it’s the type of move that Take-Two really had to make to keep pace with rivals snatching up other mobile publishers like Electronic Arts and Glu Mobile’s deal last year. In addition to more color around the acquisition, Take-Two is generous with unit sales and revenue figures for its major franchise. Grand Theft Auto V reached 155 million sold last quarter, I expect that to hit or pass 160 million this time. There should also be other updates on game performance including NBA 2K22, Red Dead Redemption 2 and various titles from Take-Two’s Private Division label.

Sources: Company Investor Relations Websites.

-Dom

Nintendo Reduces Annual Switch Target in Mixed Yet Still Impressive Financial Report

As the latest console manufacturer and software maker to feel the impact of component supply shortages in consumer technology, Nintendo shared a mixed earnings report for the six months between April and September.

The good news is that, in the context of the last decade including five years of Switch sales, this second fiscal period was still a historically good quarter considering the environment. Plus the Japanese gaming company actually signaled optimism in certain areas by raising guidance for profit and software performance.

Lifetime Nintendo Switch hardware sales reached 92.87 million to date after moving 3.83 million more units in the three months ending September. It’s the seventh gaming console or device of all time to pass the 90 million threshold.

That brings the most recent six month total to 8.28 million Switch shipments, down 34% compared to the highs of last year.

Originally Nintendo was targeting 25.5 million for the full year. That’s been revised to 24 million, consistent with a recent report out of Nikkei claiming production would be exactly this amount for the fiscal year ending March. Which means the company has to ship 15.72 million in the back half. Unfortunately, this figure could even be higher if the part shortages and supply chain circumstances were better.

“We can’t produce enough to meet the demand we are expecting during the upcoming holiday season,” President Shuntaro Furukawa commented during a briefing after the release. “Currently there is no sign of improvement and the situation continues to be severe, so I can’t say how long it will continue.”

As I wrote a few months back, the lifetime figure for Switch hardware sell-thru to consumers was 85 million back in June. Now it’s upwards of 90 million which implies an even higher percentage of shipments hitting households. A clear indicator of end-user demand as Switch continues to sell at retail.

While Nintendo’s slate of new exclusive software releases has been quiet the last few months, it provided updates on them and evergreen titles. The Legend of Zelda: Skyward Sword HD has shipped 3.6 million units since launch in July. Going back historically, it’s selling at a faster rate than the original Wii version which sold-in 3.52 million between November 2011 and March 2012.

In its second quarter on sale, Mario Golf: Super Rush sold 600K units to reach 1.94 million. Signs point to it now being the best-selling game in the series, above the 1.47 million of Mario Golf on Nintendo 64. And the most curious result to me was New Pokémon Snap, which hit 2.19 million lifetime after.. 2.07 million in the quarter ending June? Granted these are only for outside of Japan since The Pokémon Company publishes it locally. Without knowing the full picture, it’s hard to compare it to the top-selling original at 3.63 million lifetime. All we know is that it lacks any sort of momentum outside of its home market.

On the financial side, Nintendo’s first half revenue reached $5.69 billion or a reduction of 19%. This implies July to September quarter revenue of $2.75 billion, representing a decline of 27%.

On the profit side, operating income dipped 25% to just over $2 billion during the six months ending September. The second quarter alone saw this metric reach $913 million, when it was $1.34 billion in the prior period.

Again when calculating the latest annual period, operating profit reached $5.18 billion. That’s actually above the $5.01 billion aggregated last year.

All of these results reveal a similar trend for Nintendo’s forecast going forward. The company reiterated its annual revenue guidance of $14.58 billion, which would be a decline from the record $16 billion or so. It then upped operating income target by 4% to $4.74 billion. While that’s still down from the all-time high of $5.8 billion in 2021, the upward move combined with an increased dividend payout as well shows more confidence in its expected profitability.

Time to recap the full report and make some predictions of my own.

Boiling this gallery down into a quick summary, Nintendo’s business is reverting towards the mean after historic highs due to supply constraints, a more sparse lineup plus a comparison to the commercial phenomenon that was Animal Crossing: New Horizons. It’s still doing very well.

Now I’ll move into the fun part.

Quick reminder that revenue during Q2 hit $2.75 billion. As displayed on the quarterly graph above, this is the second highest result for a second quarter since 2009 behind only the record-breaking sales around this time in fiscal 2021. For context, I’ve included an annualized chart as well. Expanding this sales metric to a trailing 12-month figure shows $14.7 billion in total. Compare that to $14.89 billion a year back and the trend is clearly normalizing. It’s still among the best in a decade, notably when looking at pre-pandemic times.

Accounting for expenses, operating profit hit that $913 million figure down from $1.34 billion in 2021 Q2. Similar to revenue, it’s the runner-up result when looking back more than a decade. Annualized operating income right now is $5.18 billion, even better than last year which shows strength in margins and a shift towards evergreen titles retaining players that want to continue spending.

Both of these are still highly positive, especially in comparison to the difficult years surrounding Wii U’s flop after its launch in 2012. Last year was more of an outlier, an extraordinary time with Animal Crossing: New Horizons release right before most of us began staying home.

Regional split exhibits a similar movement as last quarter, with The Americas making up 44% now versus 41% last year. Europe is up next at 24%, up from 25%. Japan was at 23% last year, it’s now slightly below at 22%. This means 78% of Nintendo’s sales right now are outside of its home market.

Digging into product categories is a bit more interesting. 43% of Nintendo’s business is from Switch hardware which is down from almost half at 49%. Retail software is 30%, compared to 25% previously. Digital software is actually down to 11% from 14%, while subscriptions and add-ons hit 12% this quarter while generating 8% in 2021 Q2. The small remainder is from mobile and IP licensing business. This reflects lower production of Switch and improved split for retail intriguingly enough. Existing owners are buying games, and non-owners are waiting on inventory.

Now that Nintendo and its peers Microsoft and Sony have all reported their respective quarters ending in September, we can look at how they stack up against one another. Because it’s always a competition, right? No, because all of them are doing very well overall and selling as many pieces of hardware their suppliers can muster. It’s still fun to run the numbers, at least for me.

Remember that Nintendo generated $2.75 billion. From my articles on Microsoft and Sony, quarterly revenue from gaming was $3.6 billion and $5.86 billion respectively. These were both all-time highs for that particular quarter, while Nintendo was in the business of breaking top-line records around a year ago. Microsoft doesn’t report operating profit unfortunately, so all we have to compare is Nintendo’s $913 million to Sony’s $750 million.

This tells the story of companies at different stages in their console life cycle, naturally. Nintendo’s hardware margins are better right now because Switch is five years old, while Xbox Series X|S and PlayStation 5 launched in November 2020. These higher priced boxes are generating substantial revenue though also cost more to manufacture. There’s also the subscription impact for Xbox Game Pass and PlayStation Plus, whereas Nintendo’s online is lower cost. (Well, before the recent Expansion Pass.)

Moving back to Nintendo itself, out of the 8.28 million Switch units shipped in the six months ending September, 6.45 million were Standard edition while 1.82 million were Switch Lite. Basically last year the standard model alone, shipping 8.36 million, outsold the combined total in Nintendo’s latest half year report. Switch Lite has taken the biggest hit lately, off 56%. I’ll note the Switch OLED launched right after this fiscal period, so it will be curious to see how Nintendo displays splits next quarter. The assumption is OLED will slowly replace the Standard option.

I’ll reiterate what we all are witnessing, these hardware trends show slowing momentum amidst part supply challenges and an abnormally high comparable last year. Even a decline of 34% for hardware units overall in the first half was still well above fiscal 2020 two years back when it was 6.93 million.

Software is faring better on a comparative basis, declining only 6% during the six months ending September to 93.89 million units. It was slightly above 100 million before. This brings Switch lifetime software to 681 million, up from 632.4 million a quarter ago. I don’t have much analysis on that other than to say that’s a lotta games!

Over this same time frame, Nintendo shared how there are 18 titles, 14 self-published then four by 3rd parties, that amassed at least a million copies sold in this time alone. This is down slightly from the 20 million-sellers last year, reflecting a bit lighter lineup this time around.

I mentioned sales for newer releases like The Legend of Zelda Skyward Sword HD and others earlier. Nintendo also provided updates on its more evergreen titles from past periods, so I’ll share the current list of top-sellers on Switch as of September. Mario Kart 8 Deluxe reached 38.74 million to become the biggest commercial success in the franchise passing Mario Kart Wii at 37.38 million. It jumped another 1.66 million somehow in the quarter and continued to show why sadly there won’t be another Mario Kart until next generation. Next up is Animal Crossing: New Horizons rising almost a million units to 34.85 million. Third is Super Smash Bros. Ultimate crossing the 25 million mark, landing at 25.71 million to be exact.

Elsewhere, stand-outs lower down the software list include Super Mario Party up 760K to almost 16.5 million, New Super Mario Bros. U Deluxe shipping 1.04 million to lifetime 11.48 million then Super Mario 3D World + Bowser’s Fury from earlier this year gaining 770K in the last three months to its 7.45 million total. Momentum here is one of the reasons why its software split is widening, in addition to hardware constraints of course. I expect the upcoming holiday season to be similar.

I’ll note Nintendo didn’t share news on WarioWare: Get it Together!, which debuted in September. Which points to a sub 1 million seller. Then Metroid Dread launched in early October, so we’ll hear about that next time around. I’m anticipating a major success within the mainline Metroid franchise.

On a related topic, digital sales for Nintendo declined 16% in the last 6-months to $1.3 billion. So it made up around 23% of its overall revenue. From a software standpoint, digital units made up 45% of total dedicated platform game sales during this time frame. That’s down slightly from 47%. This trend parallels the decline in overall software sales, though looks to be more pronounced as brick-and-mortar makes a return.

Alongside these earnings results Nintendo provided a more broad corporate briefing update which covered a range of topics. I’ll focus on the more tangible numbers and comments from executives on Switch’s life cycle since 2017 and potential future of its various businesses.

Nintendo actually posted certain engagement statistics, the first called “annual playing users” which represents someone playing a Switch at least once in the past year. That’s at 79 million currently, down from 87 million which was of course the highest it’s been since launch, driven by the enormous growth last year. Nintendo Switch Online however is growing, with 32 million subscribers compared to the 26 million in September 2020.

Going forward, management is seeking another year of growth for Switch with its recent start of OLED model production. It hopes this will maintain engagement and contribute to ongoing software success.

“Nintendo Switch is shifting to a new stage where the foundation of software business growth is being strengthened in addition to the further expansion of the hardware business,” Furukawa said. “With the Nintendo Switch lineup and its new addition, Nintendo Switch OLED Model, we will aim for a sixth year of growth, something never before experienced with our dedicated video game platform business.”

This sentiment is reflected in its financial forecast and software guidance, even if hardware is expected to soften.

Nintendo opted to reiterate its dollar sales target for the full year ending in March, which it thinks will be roughly $14.58 billion. Other than last year, that would be the highest in a decade. Executives revised operating income forecast upwards 4% to $4.74 billion. While down from the record-breaking $5.84 billion of fiscal 2021, it’s still above every year than 2010. Not too shabby when putting it in context over time.

Alongside the reduction in annual hardware unit sales forecast from 25.5 million to 24 million, Nintendo actually raised its software unit guidance to 200 million. That’s 5% higher than it was before.

“Our [Switch] shipment forecast for the second half was reduced because of the change in our production plan due to the effects of the global semiconductor shortage,” said the team. “On the other hand, we revised the Nintendo Switch software forecast up by 10 million units to 200 million units based on the sales performance of the first half.”

My estimate for Switch hardware in the year ending March 2022 is now revised to 25 million from an upbeat 28 million. Supply conditions are not improving. There’s too much uncertainty. Upside for Nintendo is the OLED version comes in at a higher price, generating more revenue per unit sold. The company claimed this model is just as profitable as others, meaning the net result is bottom line growth potential.

And I can see the rationale for Nintendo bumping up its software target. I think Metroid Dread is going to be an overwhelming success. The type of break-out that Animal Crossing had last year, even if not nearly as much unit upside. There’s also two Pokémon launches in the next three months with Pokémon Brilliant Diamond/Shining Pearl in a couple weeks plus Pokémon Legends: Arceus scheduled for January. Pokémon is one of the most dependable brands in all of gaming. Lastly, this optimism could signal a potential January to March release that isn’t on the calendar just yet so I’d watch out for that. (I don’t know anything. Just reading into the numbers is all.)

The last tidbit of information came from a question and answer discussion after its briefing and is referenced in the above slide. Nintendo’s next gaming system is planned for this decade, of course. Furukawa indicated that internal research and technology building is ongoing for this next console. Or an “experience” as he describes it.

So, not even Nintendo itself knows what the successor to Switch will be or when it’s targeted to begin production. I’d bet it’s not too far off from the winning formula of the current hybrid device.

That wraps up the numbers and analysis for Nintendo’s second fiscal quarter report, an impressive one in context even if it can’t reach the high bar set 12 months ago. Switch boosting past 100 million unit sales is a foregone conclusion at this point, even as the company provides mixed forecasts for the year ending in March. Like all consumer technology manufacturers at this stage, it’s at the mercy of part availability and supply logistics which are challenging during a world that’s still undergoing a deadly pandemic. Luckily its software prowess and quality lineup are offsetting hardware limitations, as Nintendo is best-in-class at making compelling games.

For those interested, there’s a lot more from its corporate briefing including IP decisions, expansion into other media like movies, theme park strategy and other initiatives. I didn’t have the space to cover here because I focused on the financial results, and these are more nebulous topics. Certainly still worth a look!

Hope everyone is safe this busy earnings season. Check back later for more commentary and thanks for reading!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥ 109.78.

Sources: Getty (Photo Credit), Nikkei, Nintendo, Video Games Chronicle.

-Dom

PlayStation Records Best 2nd Quarter Sales Ever While Profit Falls Over 20 Percent

Now up this quarter for console manufacturers and game development is Sony, owner of PlayStation and responsible for many commercial hardware successes plus some of the most memorable, big budget titles of all time.

Speaking of all time, Sony established yet another massive record when it reported fiscal 2021 second quarter results ending September. Its Game & Network Services (G&NS) segment, which houses the PlayStation brand, just achieved its best ever revenue during a second quarter: $5.86 billion. The prior record holder was three years ago in 2018 at roughly $5 billion, when PlayStation 4 was well into its lifecycle.

The Japanese consumer tech giant attributed this top-line success to an increase in hardware sales, a better 3rd party software effect plus exchange rate impact despite a dip in first-party game sales mainly on a more sparse lineup. This means PlayStation 5 is showing solid momentum at this stage, bolstered by buyers spending on multi-platform software, services and add-on content.

On the downside, operating profit for the PlayStation unit dipped more than 20% in the second fiscal quarter ending September to just over $750 million. Partially because of a tough comparable to a powerful number last year during maximum quarantine restrictions globally. Sony is of course selling less PlayStation 4 consoles and related accessories lately. Not to mention the average cost of making a PlayStation 5 during the quarter exceeded its price point, and first-party software is currently lagging.

When focusing on hardware shipments, PlayStation 5 has already reached its fourth quarter on the market. Time flies. Sony said it produced 3.3 million PlayStation 5 consoles during July to September, bringing its lifetime total to 13.4 million. Both of these figures are ever so slightly below the PlayStation 4 during the same relative time frame, which moved 3.4 million during the same fiscal quarter and reached 13.8 million at this point in its life span.

No doubt Sony is feeling the impact of global component and chip shortages, though the good news is the latest hardware is mostly selling out when available. Technically we haven’t heard a formal update on PlayStation 5 hardware unit sell-thru since the 10 million milestone back in July, when the company announced it as the fastest-selling console it’s ever made. I’m confident it’s at least 13 million right now, implying parity with its predecessor. Or even better.

During the firm’s conference call, Chief Financial Officer (CFO) Hiroki Totoki acknowledged the production difficulties yet reiterated both its hardware shipment goal of 14.8 million PlayStation 5’s and current financial targets for Sony’s gaming business this fiscal year ending in March.

“We have not changed this target,” said Totoki, referencing the aforementioned 14.8 million guidance. “Worldwide there is a disruption in logistics and mainly semiconductors device supply are being constrained. This is having a larger impact. And as you know, the hardware sales in the first quarter were less unit-wise, and so this is having an impact on us likewise with the second quarter. I think with effort and putting in place different measures, the PlayStation platform momentum can be maintained.”

In order to reach this number Sony needs to ship an additional 9.2 million PlayStation 5’s in the next six months, a bulk of which will happen during the holiday season. Personally, I’m leaning towards betting this will be achieved. Even if I’m not as sure as I once was. More on that later.

For now, the fun starts. I’ll dig into some quick analysis of underlying numbers within this latest report and then it’s forecasting time!

On the whole, Sony generated roughly $21.5 billion in sales during the quarter which was a 13% increase. This was attributed to major boosts in G&NS, Pictures, Music plus its Electronics Products & Solutions (EP&S).

From a profitability standpoint accounting for expenses, the firm’s output was effectively flat. Operating income during Q2 moved up 1% to $2.87 billion. EP&S provided a substantial boon here, while the aforementioned decline in gaming profit led on the downside.

PlayStation was still the company’s main contributor from both a sales and profit standpoint. That record Q2 revenue of $5.86 billion was up 27% and represents right around 27% of Sony’s total top-line. While the $751 million in operating profit from this business marked a decline of 22%, it still comprises 26% of total profit.

Where does this fall in the context of results lately? Taking a look at trailing annual figures helps add to that perspective, which is displayed in the first two charts I’ve compiled. Over the last four quarters, the PlayStation brand is responsible for $25.47 billion in sales. This is its best ever aggregate result, a billion U.S. dollars more than any rolling period in recent memory.

Operating profit tells a different story of course since earlier days of the pandemic, as expenses rise plus first party software output slides. Adding up the past year, G&NS segment income was $2.54 billion. This is the lowest since fourth quarter fiscal 2019.

The last chart in the gallery above displays quarterly contributions from each product category within PlayStation’s portfolio. Add-On Content is the primary factor at $1.71 billion, nearly 30% of gaming revenue and 10% higher than Q2 in 2020. Hardware is the clear growth story, nearly tripling since the final hurrah of last generation. PlayStation consoles contributed a quarter of gaming sales for Sony, reaching $1.46 billion. On the software side, Physical dipped 17% while Digital edged up slightly.

These dynamics reveal a couple intriguing trends. Even if there are less people playing than last year, they are still purchasing additional items and downloadable content for the games they own. It’s representative of a modern industry where games have longer tails and stay supported well after release. Digital is proving resilient, while retail is inconsistent. Oh, and PlayStation 5 is popular. That’s an easy one.

It’s only natural at this stage to run a quick comparison against two of Sony’s main global competitors in Microsoft and Nintendo. As I wrote earlier this week, Microsoft’s corresponding quarter was also a record-breaker internally on the revenue side and it’s reached $15.86 billion over the last year. Nintendo reports next week, its latest trailing 12-month sales around $15.56 billion. I expect that to increase accounting for its latest quarter so it’s not apples-to-apples just yet. Either way, PlayStation is clearly exhibiting its sales prowess. With my usual caveat that top-line doesn’t tell the whole story.

Financials and hardware sales weren’t the only juicy parts of Sony’s latest report. There’s also updates on PlayStation Plus, user engagement, software then its corresponding digital split. Note I included a full excerpt in the earlier gallery containing this supplemental data.

PlayStation Plus subscribers reached 47.2 million as of September month-end, which is up compared to 45.9 million 12 months back. A mere fraction off the quarterly high of 47.4 million subs back in March.

Monthly Active Users (MAUs), or the estimated total unique accounts that used PlayStation Network or played software in the ecosystem, shrank from 108 million last year to 104 million now. It’s the lowest in at least the latest six quarters, a statistic which was reflected by executive comments.

On the conference call we learned gameplay of PlayStation users was down 17% in Q2. Still with PlayStation Plus momentum, additional content spend and digital sales consistency based on category metrics, management called it an improving “quality” of engagement. Basically while player count is an important barometer, it’s more about how much people are spending. If the former is down while the latter is up, it’s really a win.

Full game software unit sales across PlayStation platforms, a figure which includes bundles, totaled 76.4 million, roughly 10% of which were first-party titles. Compare that to 81.8 million and 16% first-party from July to September 2020. Digital download ratio is now at 62%, up a bit from 59%. Sony doesn’t report exact physical versus digital units. Based on that earlier physical software revenue decline, the implication is retail softness is behind the change.

These indicators reflect a handful of things to me: Lower exclusive output, better spend on evergreen experiences plus a general impact of game delays. The period between July and September was light for PlayStation exclusives. Deathloop and Kena: Bridge of Spirits led the charge really, alongside “director’s cuts” for Ghost of Tsushima and Death Stranding. The first is actually published by Xbox Game Studios and while the second recouped its development costs and did well on platform ranks, it’s still an indie project. Multi-platform launches like FIFA 22 and Madden NFL 22 weren’t enough to beat out a strong prior comparable.

Not to be forgotten just yet, PlayStation 4 is still active on the software side even if much less so on hardware shipments which were 200K. That brings lifetime to 116.7 million. Any hopes of the second best-selling home console of all time moving past PlayStation 2’s 155 million is out the window by now. The upside is the latest generational transition is the most opportunistic for consumers, as PlayStation 5 does have backwards compatibility.

That’s enough looking back. Instead, what’s next for Sony?

Well management is certainly optimistic on future prospects, raising fiscal year ending March guidance for both sales by 2% and operating income by 6%. It now anticipates almost $90 billion in revenue, then $9.45 billion in profit.

At the same time, it reiterated internal forecasts for the PlayStation business even in the face of weakening operating profit. Target is $26.34 billion in sales for the year, with almost $3 billion in operating profit expected. Both of these would be substantial, establishing new financial year records.

This historic performance would require a strong showing from PlayStation 5 hardware shipments naturally, hitting that 14.8 million figure targeted for the full year ending March 2022.

Responding to an analyst question, Managing Director of Investor Relations Sadahiko Hayakawa echoed confidence in the platform. “I think that with effort and putting in place different measures, the PlayStation platform momentum can be maintained. And especially to the users waiting for their PlayStation 5, said Hayakawa. “We want to be able to supply as many PlayStation 5’s as possible to our customers who are waiting. That is our thinking.”

Right now I tend to agree with the top-line target for G&NS, taking into account another holiday for PlayStation 5 and related software. A steady hardware prediction is trickier, given so many uncertainties and how a lot of it is out of Sony’s control, no matter what executives claim. I’ve moved toward being less confident in my 15 million annual shipment estimate, though I will keep it temporarily. Perhaps out of stubbornness.

And I’m nowhere near bullish on the profit target. Especially with rising component prices, lower chip availability, player figures wavering and inching up digital sales. Will additional content spending and hardware growth be enough to offset expenses? I’m going to say it misses slightly, with the room for review once seeing where the holiday quarter lands.

Before wrapping, I want to mention further comments from Sony’s leaders on investment and focusing efforts. After purchasing Bluepoint Games, Fabrik Games and Firesprite all during the past quarter, the team plans to maintain “aggressive” investment in its development capabilities. This implies expansion beyond its current studio suite, so I’m curious where the next move will be.

CFO Totoki also said Sony wants to enhance and increase PlayStation Studios to invest more on development of games for PC and mobile, pushing beyond its traditional console market share. The announcement of God of War (2018) planning a PC release in January 2022 echoes this statement.

PlayStation is clearly the most important part of Sony’s overall business, hitting records and doing its best to keep up with hardware demand. The cost of investment and input prices to make PlayStation 5 has had an effect on its bottom line lately, though maintaining its annual targets shows a positivity that I don’t fully share across the board until gleaning more from the global chip situation and holiday performance.

Did anything stand out to you while checking out my article or Sony’s announcement? Do you think it will meet its targets and boast record PlayStation performance? Give a shout here or on social media. Be safe and thanks for reading!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on the reported conversion: US $1 to ¥ 110.1.

Sources: Microsoft, Nintendo, Sony.

-Dom

Microsoft’s Xbox Division Records Best First Quarter Sales Ever

Back in July, I wrote about how Microsoft’s Xbox division set both a new annual and fourth quarter sales record. Well folks, it’s back at it like a bad habit, this time recording its best ever first quarter revenue performance among other highs.

As the Xbox Series X|S generation approaches its first year anniversary (geez already) and Xbox Game Pass attracts players ahead of major title launches like Forza Horizon 5 and Halo Infinite, Microsoft’s gaming top-line is as strong as its ever been.

The Washington-based consumer tech conglomerate recently announced earnings results for its first fiscal quarter of the 2022 financial year, which runs from July to September. Within, the company shared how gaming revenue grew 16% since this time last year. That equates to nearly $3.6 billion in sales, a record Q1 high.

With this latest trajectory, Xbox as a whole has now achieved double-digit sales growth in each of the past six quarters.

While executives shared little to no specifics on Xbox Game Pass subscriptions or hardware units for consoles, they did provide certain color around gaming in this quarter on a conference call with analysts.

According to Chief Executive Officer (CEO) Satya Nadella and Chief Financial Officer (CFO) Amy Hood, the company is continuing to attract new gamers and retain those it established during the pandemic. This was a “record first quarter for monetization and engagement” per Nadella, while Hood said the firm “shipped more Xbox Series X|S consoles than expected, even as demand exceeds supply.”

One thing that management didn’t specify is Xbox Series X|S comparison to prior generations, which it did last quarter when they announced it was the fastest-selling in history. Does that mean it’s no longer the case, or did they just not specify it? Hardware sales for Xbox rose 166% since this time last year, implying its best first quarter by revenue based on estimates backing into it historically. We don’t actually know other than how well it’s translating to dollar sales.

Let’s look further at what numbers the company did report, namely how they translate to certain trends.

Taking a look at the earnings slides provided by Microsoft, gaming revenue grew that 16% compared to last year’s first quarter. Or $3.593 billion in dollar sales, to be exact. Compare that to the prior record holder: last year’s $3.1 billion in Q1. This was of course before the Xbox Series X|S launch in November 2020 and the ZeniMax deal closure in March 2021, so growth is certainly anticipated. Microsoft guided a “low double digit” increase, thus the result came in above forecast.

In terms of categories within gaming, Xbox Content & Services i.e. software and subscription rose slightly at 2%. A modest gain. Based on friend of the site’s Welfare’s historical math at the Install Base forum corroborated by yours truly, that translates to $2.88 billion. A low yet steady growth rate here makes sense and was in-line with Microsoft’s forecast. Last year was a few months into stay-at-home restrictions. This time, declines in third-party weren’t enough to offset increases in Xbox Game Pass subs plus first-party software.

Xbox Hardware continues to be a substantial growth driver naturally, rising 166% on high demand for the supply-constrained Xbox Series X|S family of devices and a low comparison last year. Backing into dollar sales, it’s roughly $710 million which is the best Q1 for console revenue since 2016.

What I like to do after learning quarterly figures is expand to annual, it helps identify more macro trends. That’s where my chart comes into play, mapping out total revenue and showing splits between the two sub-segments. Microsoft’s gaming revenue over the last 12 months is approaching $16 billion for the first time in history. The latest result is $15.86 billion, 77% via Xbox Content & Services. This is happening due to the combination of studio investment, rising first party game output plus the ecosystem play of subscriptions and cloud offerings.

Unfortunately as I’ve mentioned in the past, Microsoft doesn’t drill down into exact profit metrics within gaming. That doesn’t mean I can’t infer, of course!

The More Personal Computing overview slide describes operating income growth of 7% for this category that contains the Xbox business, which is lagging the 12% revenue growth. That’s driven by a shift towards gaming, notably notoriously lower margin consoles. Expenses rose 15%. This mix shift and margin decline signifies costs associated with financing the gaming business, a research and development focus plus marketing of products like new Xboxes, Game Pass and software in the back half of this year.

At this juncture, I’m disappointed in Microsoft’s decision to hold back any sort of details on its flagship exclusive. Which isn’t a single game. It’s Xbox Game Pass.

There was speculation recently after Take-Two Interactive boss Strauss Zelnick threw out a figure of 30 million subscriptions during a panel with Xbox lead Phil Spencer, who reiterated 18 million as the latest figure. Which everyone knows is outdated from way back at the beginning of this calendar year. There were rumblings it hit 22 million a few months back, albeit unconfirmed.

A potential reason for Xbox playing coy is a recent finding by Axios showing that for the year ending June 30th, Xbox Game Pass subscriptions rose 37%. Below the company’s internal estimate of 48%. While it makes sense this is less than the 86% for the year ending mid-2020, I’m curious if Microsoft is hesitant because of these speculative figures. Nearly 40% growth is actually a really impressive figure. Combine that with Nadella’s comments about best ever engagement, why not give an update? It’s just unclear where it stands now on number of subscriptions. Or really any other specific engagement indicators other than Nadella’s vague comments.

Flipping over to hardware, the big question remains: How many units of Xbox Series X|S consoles are in the market right now?

Last quarter, I shared how a reliable industry estimate for Xbox Series X|S was roughly 6.5 million units. Given the notable hardware growth alongside supply considerations, does that mean it’s now more than 8 million? I believe so, though really wish Microsoft was as transparent as its peers in this department. Good news is companies are selling-thru to customers (or scalpers, I know) whatever they can produce, which is the important barometer.

Speaking of competitors, it’s a bit tricky to run comparisons until both Sony and Nintendo report their September-ending quarters scheduled for tomorrow, October 28th then November 4th respectively. (You should know that from my latest earnings calendar!) Using June figures, Nintendo’s trailing annual gaming sales totaled $15.56 billion while Sony’s reached $24.35 billion. Microsoft and Nintendo are virtually neck-and-neck, though it’s not a perfect comparison until next week. While this provides perspective, the real trend is how records are being met or set constantly in this environment. It’s indicative of player retention and ongoing supply for manufacturing components.

One additional tidbit as part of Microsoft’s 10Q regulatory filing is a further breakdown of the ZeniMax/Bethesda acquisition. The total cost ended up being $8.1 billion for the deal that closed back in March, above the previous estimate of $7.5 billion. I’m not sure if the company has shared this before, it’s the first time I caught the exact figure. Earnings from ZeniMax have been included in More Personal Computing since closing. Xbox is investing in development of key future Bethesda titles like Starfield, Indiana Jones and even The Elder Scrolls VI, so I expect increased expense trends to continue.

Before wrapping up, I wanted to quickly review Microsoft’s overall company results.

It generated a whopping $45.3 billion in revenue during Q1, implying growth of 22%. $13.3 billion of this from More Personal Computing. Trickling down to gaming, this means the Xbox division contributed around 8% of total company sales.

On the profit side, Microsoft saw $20.2 billion in operating income. That’s 27% higher than this time last year, and the first time it’s surpassed $20 billion during any quarter. These are record times, driven by its cloud business and enterprise offerings. It’s also the reason why the firm can invest in certain areas, including Xbox.

The upcoming quarter will be an eventful one for Microsoft and its gaming business alongside the industry as a whole. It’s the coveted holiday quarter in various parts of the globe, which is an intense time for releases and hardware promotions. The company expects Xbox to have yet another record-setting performance.

“In gaming, on a high prior year comparable that included the launch of our new consoles and strength across Xbox content and services, we expect revenue growth in the high single-digits,” said CFO Hood during the forecast portion of the conference call.

Assuming the mid-range of that estimate, around 7% to 8%, that’s upwards of $5.4 billion during the holiday quarter. That would comfortably achieve a record second fiscal quarter, beating out last year’s $5.02 billion.

So, can Xbox top that? Yes. It will. Personally, I’m forecasting 10% or even higher for the broader gaming sub-category.

Within, Microsoft said Xbox Content & Services should grow in the “mid teens.” If we put that at exactly 15%, it’s $4 billion. That would be over $500 million more than last year’s total, and yet another historical high for a Q4. I can certainly see that happening, with software and services driven by key title launches like the aforementioned first-party releases then multi-platform favorites like sports titles, Call of Duty: Vanguard and Battlefield 2042.

Xbox Hardware will be the more intriguing result to me as it’s a full year into the new generational cycle. Microsoft doesn’t issue formal estimates for hardware, though it’s easy enough to back into it making these prior assumptions. Based on its other guidance, hardware sales could reach $1.3 billion. That would be slightly down since the launch quarter of Xbox Series X|S, when it was over $1.5 billion. This is totally dictated by supply since major discounting won’t happen yet. Which is why the effort towards Xbox Game Pass and cloud are so integral to the firm’s broader strategy.

Well, that’s a pretty big quarter for Microsoft overall and within Xbox. Record results, generic comments and plenty of forecasts to chew on for the future. What did you think? Are you also disappointed by a lack of transparency? Do you predict it will hit upcoming targets?

Check back soon for other write-ups and I look forward to chatting on social media soon. Thanks for reading!

Comparisons are year-over-year unless otherwise noted.

Sources: Axios, Welfare via Install Base Forum, Microsoft, Xbox Twitter (Image Credit), Yahoo Finance.

-Dom