New year, same old calendar. It’s the first earnings season of 2023!
Long-time fans of the site know this is the place for the most comprehensive calendar of earnings dates covering companies across gaming, media and technology. The perfect post for any bookmarks bar.
My calendar’s grown over the years, now boasting over a hundred companies including content publishers, consumer electronic manufactures, software developers, cloud giants, media providers, independent game makers and internet conglomerates. I guarantee there’s something here for everyone.
The latest quarter of results will include sales from the highly-coveted holiday season for those involved in pushing products or attracting eyeballs. In general, it was a challenging quarter across these industries coming off highs of 2021, including a number of record-setting reports. Cost inflation, geopolitical issues and supply disruptions are all still present in the market, among other macroeconomic pressures. This year is off to a tough start for many folks in the tech industry in particular, as layoffs at major firms like Alphabet, Microsoft and Amazon impact talented people whom I hope land on their feet.
In order to track everything, I’ve organized the above image and the below Google Sheets document for easy usage. I’ve also listed out three key companies to watch in the coming weeks within these industries. Thanks for visiting!
When Activision Blizzard reports its fiscal fourth quarter report in February, the big story remains the pending acquisition by Microsoft which has potentially hit snags in key regulatory markets. There’s also the tenuous relationship between management and workers during ongoing unionization efforts, plus workplace condition improvements that executives claim are happening. I don’t expect much in this department, though it would be ideal to hear more about how executives plan to make it a better place to work.
In terms of results, all signs point to Call of Duty: Modern Warfare 2 having a massive holiday, so I expect Activision’s contribution to be sizeable which will boost the overall company on a growth trajectory. On the other hand, I’m bearish on Overwatch 2 and Blizzard’s recent output. Looking ahead, forecasts should be strong as Diablo IV launches in June and there’s still the mysterious language around this year’s “premium” Call of Duty release. Could this be an opportunity to say if it’s a new annualized title or an expansion for the latest game? While I’d welcome it, color me a skeptic.
Embracer Group (EMBRAC B): Thursday, February 16th
During mid-February, when Embracer Group reports its third fiscal financials of 2022, the big question will loom: Are there any companies soon to be embraced by its acquisition touch? All has been quiet lately on the purchasing front for Embracer since snatching up Square Enix assets last year, curious for a company known to gobble up studios big and small to expand its robust portfolio and add to the “quantity over quality” strategy. As of its recent Q2 update, the broader group has 12 operating groups, almost 16 thousand employees, 132 internal studios and a whopping 234 projects in the pipeline. Twenty five of which are supposedly AAA level launches due by March 2026.
Still, partially on lackluster reception of key titles like Saints Row and the recent delay of Dead Island 2 yet again, the company reduced its full-year forecast. Combine that with a major structural change in Volition, the team behind Saints Row, becoming a part of Gearbox Publishing, and I’m curious about the viability of big budget releases for Embracer as opposed to targeting that mid-cost tier like SpongeBob SquarePants and Goat Simulator alongside select re-releases of legacy game properties. Its business is now diversified enough to weather storms, yet I’m still waiting for the sort of organic growth that comes from buying companies over a number of years.
Ubisoft (UBI): Thursday, February 16th
Out of all the big third-party gaming publishers, Ubisoft had a tough go in 2022. Even before its upcoming third quarter earnings announcement, it preemptively shared a gloomy financial update and outlook change just a couple weeks back. In addition to blaming macroeconomic conditions, the same ones its peers are operating under, management pointed to costs associated with cancelling three more unannounced projects on top of four it already killed back in July. Part of the rough patch is under-performance from Mario + Rabbids: Sparks of Hope and Just Dance 2023, the former being the most baffling considering how well Nintendo Switch titles tend to sell.
In what’s turned into a meme, Ubisoft also yet again delayed pirate game Skull & Bones to an undetermined time in “early fiscal 2023 – 2024.” Reports recently point to the company experimented with upwards of a dozen battle royale projects, following its theme of chasing trends instead of setting them. CEO Yves Guillemot and team claim that upcoming releases like Assassin’s Creed Mirage and Avatar: Frontiers of Pandora will bolster the business and help its return to growth, yet I’m skeptical this can actually be a bounce-back year for Ubisoft. I wouldn’t be surprised if it’s been quietly shopping itself around to potential buyers, perhaps garnering interest from Tencent or Amazon, because its model hasn’t been working lately. 2023 is as important a year as ever in the company’s history, and its future as a going concern.
The latest of the big three console manufacturers to report this quarter, behind Microsoft and Sony, shared its fiscal 2023 second quarter results out of Japan earlier today.
I’d call it mostly upbeat, as both sales and operating profit experienced gains, yet it’s also dashed with cautionary signals and statistics. There’s upside, partially due to the yen’s continued weakness, while headwinds on the supply side and an aging life cycle show signs of a console business slowdown.
Headlines include how Switch passed yet another sales milestone this quarter while Splatoon 3 made quite the splash for consumers after its release in September. Especially in its local Japanese market.
On the hardware side, Nintendo Switch lifetime sales reached 114.33 million after the company shipped 3.22 in the three months ending September. It’s only the third home console to pass the 114 million mark. Still, Nintendo is somewhat uneasy about this portion of its business going forward, reducing in its annual unit sales forecast.
Splatoon 3 was the headliner for new software, shipping a whopping 7.9 million units in less than a month on market. That’s a record-setting launch for the franchise by a wide margin, plus the second fastest start of any Switch game this calendar year behind only January’s Pokémon Legends: Arceus.
Looking briefly at financial performance during the first six months of the current fiscal year, Nintendo’s net sales and operating profit rose 5% and under half a percent, respectively. While hardware unit sales are down 19% for the year so far, software sales are up almost 2% which shows the resilience of Switch buyers and reflects the ongoing appeal of Nintendo’s quality titles. Even amidst economic slowdowns and inflationary pressure.
Thus, executives decided to increase their forward-looking forecast for both net sales and profit metrics other than operating income, the latter of which kept constant. As the Switch pushes into the late part of its life cycle, Nintendo remains upbeat on consumers buying content for it, especially given the upcoming calendar including a sizeable impact from Pokémon launches this holiday season.
“Although software sales accounted for a larger percentage of overall sales for our dedicated video game platform business, and first-party software accounted for a larger percentage of overall software sales, the gross profit margin remained at the same level as the same period last fiscal year.” the company wrote in its slides. “This was due to the addition of Nintendo Switch OLED Model to the hardware lineup with its lower profit margin compared to other models, and the increase in component costs due to factors such as the semiconductor shortage.”
Check below the folder for a full dive into Nintendo’s business during Q2, including company guidance and my personal predictions for the annual period ending March 2023.
Starting with Nintendo’s overall performance, net sales for the six months bumped up 5% to roughly $4.91 billion. Focusing strictly on the quarter ending September, this was up 16% to $2.61 billion.
As has been the case recently for Japanese companies, there’s currently an outsized impact from currency fluctuations which hits those that operate globally even more than the average. Currently, around 72% of Nintendo’s business is outside of Japan. Because of this, the company said the impact of exchange rate changes on first half net sales was upwards of around $480 million. Backing that out, revenue for this time might even be down 5%.
Personally, I tend to stick with the gross number because currency impact is something that’s faced by all global companies. It’s still good to understand how much it’s affecting a company’s business when a given local currency is dropping as precipitously as the yen.
Alright, enough of this currency exchange rate lesson. Shifting now towards operating profit, this particular metric rose slightly in the first half to around $1.65 billion. Strictly for the second quarter alone, it amounted to $887 million which grew more than 18%.
Essentially this shows how both net sales and operating profit increased by double-digits during Nintendo’s second fiscal quarter.
What kind of product category mix was underlying this movement? Well, for Q2, software amounted to almost 60% of total sales compared to 55% this time last year. It follows that hardware sales dipped to 40%, down from 45%. This reflects the shift away from Switch console contribution as the cycle matures, plus the challenges of production the manufacturer and its suppliers have faced lately.
“While hardware unit sales declined by volume year-on-year due in part to the semiconductor shortage, overall hardware sales increased mainly due to the depreciation of the yen.” the company’s slides noted. “Looking at our mobile and IP related business, royalty income remained stable, but income from smart-device content declined.”
To better understand the quarterly movement in sales and profitability within a broader context, you’ll see the first two charts below illustrating this movement over time and the next two are annual figures. It was the second best quarterly output in the last decade plus. Twelve-month trailing numbers are moving back in a positive direction. Nintendo’s business is proving to be resilient, notably due to high quality game releases plus the aforementioned currency movement, plus hardware is still selling when it’s hitting retail. Not to mention, people that bought Switches during the pandemic still seem to be spending on games.
How do Nintendo’s latest numbers stack up to the biggest industry peers and their gaming businesses? While Tencent doesn’t report until later in the month, its latest annual revenue was $24 billion. Sony’s gaming business generated $20 billion, while Microsoft’s Xbox division topped $16 billion. Nintendo is up next, with its current annual sales figure at almost $13 billion. However, Nintendo’s profitability is vastly superior to PlayStation; the former has generated more than twice as much operating profit in the last 12 months, $4.43 billion compared to under $2 billion. PlayStation’s investment in the new PlayStation 5 line of consoles, the Bungie acquisition and ramping developments in software and virtual reality are chomping a serious chunk of its bottom line.
Nintendo’s hardware business is clearly slowing in terms of share and shipments, however there are a number of bright spots showing that Switch’s life cycle is far from complete. In fact, it’s going to hit major milestones in the near future.
During the first six months of fiscal 2023, Nintendo shipped 6.68 million Switch units. This is 19% lower than the same period last year, when it was 8.28 million. The drop can be attributed to the base model, which produced 2.23 million units against last year’s 6.4 million. Obviously the OLED model saw tremendous growth considering it launched in October 2021. As it replaces the base version, it now makes up over half of Switch’s total unit sales.
The lifetime unit sales of 114.33 million is up 21.46 million since September of last year, when it totaled 92.87 million. Switch has maintained its respective spot as the third best-selling home and portable console of all time. The popular hybrid is closing in on Sony’s PlayStation 4, the second best-selling home console in history, which ended production recently at just over 117 million. Even further, the 118.69 million of Game Boy and Game Boy Color is also in sight.
By the end of Nintendo’s financial year in March 2023, if not the holiday quarter, the Switch will occupy the second spot on the all-time list for both home and handheld hardware. What a run! And it’s not nearly done.
All of these are based on the number of units shipped to retailers by Nintendo. Additionally, the company shared some insight into how it’s selling-thru to consumers. Compared to the July to September time frame last year, Switch is selling-thru at the same rate. From what I can see on Nintendo’s slides, sell-through last year was roughly 3.4 million units of Switch in the quarter and just slightly less this time around. Even though shipments declined by roughly 15% this Q2.
This was attributed to demand being stable, and the introduction of Splatoon 3 alongside its more ongoing titles that still attract interest. That second part especially is the driver of Nintendo’s ongoing attractiveness to buyers, and investors, plus its financial performance. Consistent demand for its hardware products bolstered by key exclusives, especially as the technology gap with modern consoles continues to widen.
Speaking of games, Nintendo Switch software unit sales rose a bit in the six month period, moving up 1.6% to 95.41 million. For the quarter ending September alone, it was exactly 54 million. Compare that to 48.6 million in the same 3 months last year and this reiterates what makes the company so consistent.
On the fiscal year so far, Switch has seen 15 titles ship a million copies or more. Eleven of these so-called “million-sellers” are published by Nintendo itself while the remainder are via external partners. While this is down from 18 in the same period last year, it’s still a healthy amount of games hitting this coveted milestone.
Unit sales for Switch games lifetime have now crossed the massive 900 million milestone. To be exact, 917.59 million games have shipped for the console. That figure was at 681 million this time last year, meaning over 236 million games have sold in the past year. It’s hard to put these numbers in perspective, other than to say that’s a heck of a lot. While it won’t quite hit 1 billion this fiscal year, it will certainly eclipse that the following year.
In the new release realm, Splatoon 3 blasted its way onto the market in September with that 7.9 million copies sold number. That includes 5 million from Japan alone! To help put this in perspective, here’s how its predecessors started during their first respective quarters: Splatoon 2 sold-in 3.61 million in 2017 while 2015’s original Splatoon debuted at 1.62 million.
First month sales of Splatoon 3 are already more than halfway to the 13.3 million lifetime figure of Splatoon 2! It’s already among the Top 20 best-selling titles published by Nintendo on Switch to date, coming in at #18. It’s truly become one of Nintendo’s flagship entries, and the biggest commercial success of its new IP this generation.
The other new title showcased in Nintendo’s earnings was Xenoblade Chronicles 3. Since its launch in late July, it’s accumulated 1.72 million in units sales. While that might not sound like a lot in the context of other Switch games, this is an exceptional result for the Xeno universe. Back in 2017, its predecessor Xenoblade Chronicles 2 started with 1.31 million and was the top-selling title ever for developer Monolith Soft at the time. Now, Xenoblade Chronicles 3 has captured that crown.
In other record-breaking news, Kirby and the Forgotten Land sold-in an additional 2.61 million units during Q2, making its lifetime total 5.27 million. This is substantial because it’s now the best-selling mainline Kirby game of all time, outpacing the 3.98 million of 2021’s Kirby Star Allies. Keep in mind, this is a 30-year old franchise in collaboration between Nintendo and HAL Laboratory. What a fantastic success story!
Elsewhere, Nintendo Switch Sports is now the 20th best-selling Nintendo-published title on Switch, reaching 6.15 million units. Mario Strikers: Battle League passed the 2-million mark, settling at 2.17 million. Then there’s more impressive milestones from Mario Kart 8 and Animal Crossing: New Horizons, which seem to stand out every time I write an article on Nintendo. Mario Kart 8 zipped past the 48 million mark, somehow selling 1.59 million in the quarter to reach 48.41 million lifetime. Animal Crossing: New Horizons is the latest in the 40 million club, achieving 40.17 million to date.
This is where I like to provide updates on subscription numbers for Nintendo Switch Online or any sort of engagement statistics from the company. And now I can! Nintendo’s corporate briefing, updated a day after its earnings report, said that Nintendo Switch Online now has 36 million members. Compare that to 32 million in September 2021. Also, the company noted that the (frankly made up) metric of “Annual Playing Users” rose to 106 million. It was 104 million last quarter.
Considering the macro environment right now and pressure on consumers from areas like inflation and the appeal of other entertainment verticals, Nintendo’s Q2 performance was mostly promising. Especially when looking at the quarter on its own, rather than the six months, which revealed double-digit gains for important financial metrics. As Switch approaches its sixth birthday in the midst of various economic challenges, the console and its games still hold mass market appeal.
Alongside, Nintendo provided updated guidance for the remaining six months of its fiscal year.
The company now expects to generated 3% more, or upwards of $12.3 billion, in annual net sales. This would be a modest 3% decline compared to the prior year. It also maintained its operating profit target of $3.73 billion, indicating a 16% decline.
“While there is a gradual improvement in semiconductor and other component supplies and a recovery trend in hardware manufacturing for Nintendo Switch, taking into consideration production and sales performances thus far, we have modified the Nintendo Switch hardware sales units forecast for the fiscal year,” said the company’s slides. “By continually working to front-load production and selecting appropriate transportation methods in preparation for the holiday season, we will work to deliver as many Nintendo Switch systems as possible to consumers around the world.”
Thus, Nintendo now expects to ship 19 million Switch hardware units in the year ending March 2023. That’s down from 21 million it expected last quarter. For reference, it shipped 23 million in the prior fiscal year. Based on the 6.68 million already on market in the six months ending September, that leaves 12.32 million during the back half. Most of that will have to come during the holiday period.
My forecast last quarter saw 20 million on the lower end. Based on where supply has been and Nintendo’s conservative tilt, I’m formally pulling down to a range of 19.5 million to 20 million.
And no, I don’t expect its price to increase.
The company’s estimate for annual software unit sales remained the same at 210 million, which would be down from 235 million in fiscal 2022. As I wrote last quarter, I’m a bit skeptical it can reach this mark. Especially now that The Legend of Zelda: Tears of the Kingdom has a May release.
Mario + Rabbids: Sparks of Hope and Bayonetta 3 launched a couple weeks back, though both remain more niche than many of their counterparts or mainline entries. The real drivers will be, of course, Pokémon Scarlet and Pokémon Violet. The franchise seems immune to over-saturation and sells big on a consistent basis. I’m expecting a grand entrance for these, with a potentially record-setting start. Otherwise, Nintendo’s slate in the coming months is light. Even the Super Mario Bros. Movie isn’t out until April!
The last item I’d like to mention is Nintendo’s announcement of entering into a joint venture with long-time partner DeNA Co. Ltd. Both companies have collaborated on the technical side of Nintendo’s account system along with mobile offerings since 2015, and this latest venture will even be a Nintendo subsidiary due to its size and capital structure.
“Based on the expertise accumulated over the seven plus years and the experience of co-developing multiple services based on Nintendo Account, Nintendo and DeNA will advance their partnership and establish a joint venture company.” said the company’s announcement. “With the objective to strengthen the digitalization of Nintendo’s business, the joint venture company will research and develop, as well as create value-added services to further reinforce Nintendo’s relationship with consumers.”
I welcome this sort of team-up, and really anything that can bring Nintendo’s digital capabilities and online services closer to its competitors.
With that, this concludes my third big recap of the last couple weeks. What stood out to you with Nintendo’s latest announcement? Do you think it can meet or exceed its latest targets? Are you planning to buy a Switch or any games in the coming months? Drop a line her or on Twitter, I’m always down for a discussion!
Feel free to hop back over to my earnings calendar to stay current, as there’s plenty of action still to come this season. Thanks y’all for visiting and I hope everyone is doing well!
Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US$1 to ¥133.93.
As the calendar turns to November, the ongoing earnings season across gaming, tech and media keeps on rolling. Those who follow my latest calendar post will know it’s only picking up steam!
Yesterday, Sony announced fiscal 2022 second quarter results. It’s the definition of a mixed bag, akin to receiving both an apple and candy bar while trick-or-treating! (I miss the spooky season already.)
Overall the Japanese consumer tech company saw improved sales and profitability. Within the PlayStation business, revenue rose in the double-digits to its best fiscal Q2 on record. However, operating profit saw a precipitous drop of nearly 50% in what was one of its toughest outcomes in recent memory.
Underlying this dynamic of good top-line growth yet decreasing profitability was favorable impact from exchange rate movement, as the Japanese yen is near its weakest point in decades. It’s also attributed to lower software output from external publishers. Then, for profit, better margins for PlayStation 5 hardware couldn’t offset high expenses from ongoing development and acquisition activity, namely the purchase of Bungie.
Speaking of hardware, PlayStation 5 lifetime unit sales reached 25 million after Sony shipped 3.3 million units in the quarter ending September. That’s the same exact quarterly shipment amount as last year. While it now outpaces Nintendo GameCube’s 21.74 million and the original Xbox at 24 million, it’s still hitting market at a much slower pace than its predecessor. Sony is upbeat on the remainder of this fiscal year at least, reiterating its 18 million shipped target. Which means it must reach 12.3 million in the back half. Read my predictions later in the piece to see if I agree.
As for engagement stats given the rebranding of PlayStation Plus during this quarter, it’s better than it first appears. From a subscriber and active user standpoint, things are looking down as both PlayStation Plus and Monthly Active Users (MAUs) across the network declined. However, Network Services dollar revenue is up double-digits. Which means the rebranding is attracting buyers that are spending more, and shedding those that aren’t interested in paying within the ecosystem. It’s actually been a win for PlayStation, despite a lower subscriber count.
“Production itself has been quite well,” said Sony Chief Financial Officer Hiroki Totoki. “We have the decline of MAUs and the other indices. The second quarter, more people are now going outdoors. And we have yet to get out of the negative cycles. PlayStation 4’s and third-party software sales have been rather sluggish. Catalog and historical titles have been declining. Against that, PlayStation 5 engagement is quite high.”
That said, here’s a deep dive into Sony’s latest numbers.
Sony’s consolidated results for the latest quarter are shown on the first slide above, and the remainder reveal insight into its Game & Network Services (G&NS) business.
Overall sales moved up 16% to $19.91 billion, while operating profit rose 8% to almost $2.5 billion. Both of these figures are best-ever second quarter results, as reported in Japanese yen. Even amidst a global scenario that’s experiencing economic slowdowns and rising inflation, Sony is proving to be resilient so far.
Now onto the PlayStation business. This unit improved quarterly revenue by 12% to a Q2 record $5.2 billion, contributing 26% of the company’s total. Operating income on the other hand was hit hard in the three months ending September, dropping 49% to $305 million.
On the top-line, these gaming results benefited from currency fluctuations even as sales of software not published by PlayStation softened. Profitability was drastically eroded by the aforementioned content sales drop and higher expenses amidst rising costs in general. There was a bit of good news sprinkled, as Sony indicated it’s losing less money on hardware in recent months.
Moving into the product sales split chart will help illustrate these talking points, showcasing what’s driving PlayStation right now. All categories were either flat or up, many of them in the double-digits. Intriguingly, Physical Software saw the biggest gain at 32%. Next up was Network Services, clearly benefiting from PlayStation Plus’ new tiered system (as cumbersome as it might be). Digital Software rose 14% while Hardware moved up 12% on better inventories. Add-On Content was the only source not to grow; though it also didn’t lose any ground, coming in flat for the quarter.
To help provide even more perspective, there are two additional charts showing the last 12 months of sales and profit for PlayStation. Summing up the last four quarters, Sony’s annual gaming revenue is currently nearly $20.3 billion. That’s the second best trailing 12-month revenue in PlayStation history, nearly identical to last year’s figure. On the flip side, the last year of operating income being under $2 billion is the worst in over two-and-a-half years. This clearly shows the challenge for Sony when it comes to gaming, maintaining profitability in a cooling economic situation as it pushes forward with big budget projects.
As I did in my recent article on Microsoft’s latest results, here’s a quick rundown of where PlayStation’s annual sales fit in the industry right now. I’ll mention the same caveat: when converted to United States dollars, the Japanese companies look a bit lighter than usual because of yen weakness. That said, Tencent’s $24 billion from gaming is tops. Sony maintains the second slot with its nearly $20 billion, while Xbox continues in third with $16 billion. Nintendo, which reports next week, was at $13 billion though that will likely move up.
Moving on from the financial side, here’s a closer look at Sony’s supplemental information highlighting even more recent stats for the G&NS division.
Full game software sales across PlayStation platforms totaled 62.5 million in Q2, which is down 18% or almost 14 million units since the same three months in fiscal 2021. This is partly driven by release slate, where last year saw titles like Ratchet & Clank: Rift Apart just before the quarter started then launches for both Ghost of Tsushima Director’s Cut and Deathloop. This year’s flagship was solely The Last of Us Part 1.
First party titles sold nearly a million less units in Q2 this year, at 6.7 million compared to 7.6 million. Even considering third party titles, mainly in the sports genre, content sales proved to be lighter. Digital split within full game software remained relatively constant, at 63% in Q2 versus 62% last year.
“When we compare software sales for this quarter with the same period of the previous fiscal year, we see sales of past library titles declined sharply, while sales of major new titles remained strong,” management said. “Users appear to be playing a smaller number of titles out of a desire to spend less money.”
Then there’s the element of subscription services and player engagement. PlayStation Plus ended September with 45.4 million subscribers, down 1.8 million since last year and 1.9 million compared with last quarter. This was mainly due to user engagement on PlayStation 4 performing worse than the company anticipated.
MAUs across the PlayStation network moved down to 102 million, seeing similar contractions against last year’s 104 million and Q1’s 103 million. Sony pointed out that total gameplay time rose “slightly” compared to the prior quarter, it declined 10%. Why? People have more opportunities to “go outside” now that COVID 19 infections are trending down. Basically, gamers are apparently touching more grass.
The last tidbit provided by executives during their prepared remarks is that PlayStation Plus subscriber ratio among PlayStation 5 general is “significantly above” that of PlayStation 4. Which makes sense, it’s a much more digital world now that’s open to paying for subscriptions like this and Xbox Game Pass. Sony’s latest rebranding and alignment of services shows its focus on attracting people to its ecosystem, so they can spend within it.
Thus concludes what I’d classify as one of PlayStation’s most divergent quarters in recent memory, presenting a clear divide between record sales and diminishing profits.
Sales growth is great to see, especially for Hardware and Network Services. I’d still argue that reigning in costs is much more important given today’s recessionary environment. PlayStation 5 availability is better than it’s been since launch and demand is certainly there on the consumer side. Its Sony’s expenditures on big budget projects, including PlayStation VR2 as a new peripheral, and buying of studios like Bungie that impacts the bottom line.
Management’s forward-looking guidance for the second half of fiscal 2022 reflects this same situation. First, it raised total company guidance for both sales and operating profit by 1% and 5% respectively. Then, it expects slightly higher sales from PlayStation however is forecasting 12% lower operating profit. This is much more in-line with my expectations.
As I mentioned above, PlayStation 5’s full year target is still 18 million units. Management claims that both material supply and logistical challenges have eased, thus it actually produced 6.5 million in Q2 and shipped around half of those to retail. I remain skeptical, keeping my previous annual estimate of between 15 and 16 million.
If it happens to meet the 12.3 million PlayStation 5 units required in the back half of fiscal 2022 to get there, lifetime sales would be 37.3 million by March 2023. Still below the 40 million of PlayStation 4 during the same time frame. It sounds like Sony’s target for fiscal year 2023 is 23 million, trying to make up ground on its predecessor. I think it will need more than that.
While Sony doesn’t provide formal guidance on software, I’m quite bullish on the next quarter and into the first calendar portion of 2023. Mainly because of two major new releases, one first-party and the other multi-platform. God of War Ragnarok hits market next week, and will rival or outpace the year’s biggest PlayStation 5 exclusives. As part of this report, Sony shared updated unit sales for God of War (2018): It’s now reached 23 million units, up from just under 20 million a year ago.
Then of course we have Call of Duty: Modern Warfare 2, what I expect to be 2022’s best-selling premium title. Yes, even considering the beast that is Elden Ring. Activision Blizzard’s Call of Duty franchise is on another level, especially its Modern Warfare sub-brand, seeing as this year’s title earned a record opening weekend of $800 million in sales to consumers. Considering PlayStation has a marketing deal in place, it benefits more than any other platform when the military shooter does well. Between that and PlayStation Plus continuing to fill out its offering, I’m upbeat on both software and add-on content sales in the coming quarters.
“We are actively pursuing various measures to further increase user engagement and re-accelerate the growth of our game business from both the hardware and software perspectives,” said Sony’s executives in prepared remarks. “We expect to see the results of these efforts contribute to sales and profit in earnest from the second half of this fiscal year and next fiscal year.”
Finally, there’s Sony’s announcement today on the timing and cost of PlayStation VR2. The follow-up to its original virtual reality headset back in 2016 will launch on February 22nd at the lofty price of US $549.99 for its base model. This reflects the same sort of revenue and profit considerations as before: It’s a major barrier to entry considering users also need to own a PlayStation 5, which will push up sales, however margins will likely be small considering how much it costs to make each unit. I’m cautious on its commercial prospects initially, and think it will appeal more over time once more people own its corresponding console.
That’s a wrap on Sony’s latest results. What were your reactions? Any surprises? Do you think Sony can hit its financial and hardware targets by March? Drop a note here or social media and check back soon for even more coverage of gaming, tech and media. Be well, and thanks for stopping by!
Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥138.2.
Sources: Activision Blizzard, Company Investor Relations Websites, Forbes (Image Credit), Michael Ng (Image Credit), PlayStation Blog.
Yesterday, Microsoft was the first of the “big three” gaming console manufacturers this season to report its financial results. (Didn’t know it was happening? Hop over to my latest earnings calendar post!)
It’s the first quarter of the brand new 2023 fiscal year for the American cloud and software giant, during which it pointed towards a better-than-expected quarter for the Xbox brand.
As I wrote a few months back, Xbox recently reported its best financial year sales ever. Now, quite resiliently, it’s achieved a new record: the best Q1 sales since reporting began.
Xbox generated $3.61 billion in quarterly sales during the period between July and September, which is up “slightly” since last year, or around half a percentage point of growth. This led to a mostly positive report overall for Microsoft’s gaming division since it either met or exceeded expectations, notably on the hardware side.
Microsoft attributed the gaming revenue gain to growth in Xbox Game Pass subscriptions and a double-digit boost from console sales. Even despite a modest decline in Xbox Content & Services, the business unit was able to grow.
The approach of services like Game Pass and cloud gaming continues to attract first-time or lapsed players, and is seemingly keeping existing buyers around, plus indicators for inventories on the hardware side are slowly improving. In particular, the more affordable Xbox Series S model is spurring growth.
“We’re adding new gamers to our ecosystem, as we execute on our ambition to reach players wherever and whenever they want, on any device,” said Microsoft Chief Executive Officer (CEO) Satya Nadella on its conference call. “We saw usage growth across all platforms, driven by strength off-console.”
How does a record first quarter for revenue look in the context of the broader company? See below for a complete rundown, full analysis and even more perspective on these numbers.
Digging into the above slides from Microsoft’s presentation, the biggest data point is that slight increase in gaming revenue to the record Q1 of $3.61 billion.
This happened in spite of downward pressure from both first and third-party software and lower engagement, mainly on the backs of subscription and hardware proving to be growth catalysts. To me, this indicates there are enough new buyers entering the ecosystem, some of which are buying consoles and others are subscribing to Game Pass on whatever devices they own. It’s enough to outpace a lighter release calendar and existing gamers spending less time playing, accordingly.
Moving to how this latest quarter fits in a broader context, the current annual sales for Xbox total $16.25 billion. My chart shows the trend over time, and the breakout of Xbox Context & Services versus Xbox Hardware contribution.
That dollar amount is actually the third best trailing 12-month result in the history of Xbox, behind only a couple recent quarters. Taking the full year into account shows the sort of revenue durability that better hardware availability and a steady subscription base can produce. Even when first party output is low, like it has been for most of this calendar year.
Now let’s talk these recent figures for Microsoft and Xbox in the scope of the overall industry. I often compare it to three peers: Tencent, Sony and Nintendo. Keep in mind a couple qualifiers. First, currency fluctuations, especially lately with the weakness of Japan’s yen, can drastically impact these kinds of comparisons for global companies. Also, revenue is just one measure of a company’s wellbeing. Microsoft doesn’t share profitability for its Xbox division, unfortunately. I still think this is a worthwhile endeavor, even given these caveats.
In terms of recent annual sales, Tencent remains the largest global gaming company at roughly $24 billion combined from its domestic and international games businesses. Next, Sony’s PlayStation amounted to $21 billion at last count. Which means Microsoft slots in here, at just over $16 billion. Finally, Nintendo’s latest annual result was $13 billion. These ranks have been about the same in recent years, although Nintendo has higher margins than its peers so it makes more in profit.
Speaking of profit, we can at least glean some insight by looking at Microsoft’s More Personal Computing (MPC) segment that houses the Xbox brand. Gross margin dollars declined almost 10%, with a shifting business mix to lower margin sources. Along this, expenses rose 2% which led to MPC’s operating profit moving down 15% to $4.22 billion. Gaming is usually one of the lower margin sub-segments, so I wouldn’t be surprised if Xbox saw weaker profitability in Q1.
Now digging into the category mix for Xbox, made up of Xbox Content & Services and Xbox Hardware.
The larger contributor is Xbox Content & Services, which includes software, subscriptions and related sources. It generated $2.81 billion in sales, a year-on-year drop of 3%. This comprised 78% of overall Xbox sales most recently compared to 80% in Q1 last year. That dynamic makes total sense since its Xbox Hardware counterpart is gaining recently.
During the last 12 month period, Xbox Content & Services reached $12.45 billion in revenue. That’s roughly 77% of the aggregate and the lowest annual figure in around a year, mostly due to a lighter palette of newer software titles.
The most unfortunate part of the whole report is yet another lack of update on Xbox Game Pass subscription numbers. The last official figure from the company is 25 million, and that’s a year old. Executives claim memberships are growing, one of the positive elements of that Xbox Content & Services result, however refuse to share by how much. The only stat focused on PC Game Pass, which saw 159% increase in subscriptions. Because many of these were discounted and promotional, the top-line contribution is lighter than its console offering.
Separate of the earnings report, Microsoft’s Head of Gaming Phil Spencer did offer a slight morsel around revenue contribution and profit dynamics during a Wall Street Journal Live interview. According to The Verge’s Tom Warren, Spencer claims 15% of Xbox Content & Services revenue is currently generated via Xbox Game Pass subscriptions. He expects it to remain between 10% to 15%. If the top end is true, that’s upwards of $420 million for the latest quarter and $1.88 billion over the last year. Additionally, he claimed the service is profitable for Microsoft, though didn’t offer anything in the way of detail or proof.
Back to the report, Microsoft did share an updated engagement figure for its Xbox Cloud Gaming effort, stating 20 million people have now tried game streaming via this service. That’s twice as many as back in March when it was 10 million, thus indicating there’s continued appetite for cloud as a supplement to traditional gaming and a way to attract folks that might not own a console.
How did that more traditional source fare during Q1? Well, Xbox Hardware accounted for $800 million in revenue, up 13% from last year’s quarterly output of $710 million. Add this double-digit increase to the growing list of indicators that the supply chain situation for consumer electronics is stabilizing, as is part availability, which leads to better retail inventories.
During the latest four quarters, Xbox Hardware revenue reached $3.8 billion. That’s an all-time record amount, slightly above the $3.79 billion from two quarters ago. The entry level Xbox Series S in particular has been a boon, as Nadella claimed almost half of Xbox Series S buyers are brand new to the Xbox ecosystem.
The big question, of course, is how many Xbox Series X|S units have sold to date? Starting last generation, Microsoft doesn’t share unit sales for its hardware anymore. So it’s difficult to say for sure. Last quarter, I estimated upwards of 16 million to 16.5 million. Based on better stock and a constant demand curve, I could see 17.5 million or upwards of 18 million lifetime right now for the family of devices. As a quick comparison, Sony’s PlayStation 5 is currently at 21.7 million and will be even higher when the company reports next week.
Here’s a quick look at Microsoft’s overall results. The company achieved over $50 billion in quarterly revenue, moving up 11% year-on-year. Operating profit totaled $21.5 billion, an increase of 6%. Microsoft Cloud revenue rose 24% to $25.7 billion. Results for revenue and earnings-per-share beat out analyst estimates.
I mentioned More Personal Computing (MPC) earlier, which generated the same amount of revenue as it did a year ago: $13.3 billion. Operating profit dipped 15% to $4.22 billion on higher costs.
Shifting back to Xbox, it was a great quarter for gaming given the broader environment and challenges it’s seen on the hardware side. Achieving best-ever first quarter sales is an accomplishment, even if profitability likely took a hit due to heavy investing in Xbox Game Studios development and securing third-party deals for Xbox Game Pass. That’s, quite literally, the price of doing business.
Management provided its general outlook for Microsoft and touched on guidance for the Xbox division. Note that forward-looking guidance does not account for the pending Activision Blizzard deal, which the company still expects to close by June 2023.
“As we look towards the holidays, we offer the best value in gaming, with Game Pass and Xbox Series S,” Nadella said, pushing a bit of marketing speak. Even so, I tend to agree when it comes to both of these entry points into a robust suite of software offerings. It’s quite attractive across the landscape of the industry, especially after many publishers are embracing higher pricing for premium releases.
For the period between October and December, the coveted holiday quarter, Microsoft anticipates gaming revenue will decline in the low-to-mid teens mainly because of just how well it did last year on the strength of big first party launches. Translating that into dollars, assuming a 12% decline would get the holiday quarter to $4.79 billion in sales for Xbox. Essentially, it may regress back to a pre-pandemic level.
The company expects Xbox Content & Services to move downward at the same pace as overall gaming revenue, in the low-to-mid teens. There is upside in the guidance, as management thinks Xbox Game Pass subscriptions will increase yet again. By how much? It’s not clear. Finally, Microsoft didn’t provide guidance for Xbox Hardware. Calculating it based on the prior two, the implication is a potential double-digit decline as well.
Personally, I’m slightly more bullish on Xbox’s holiday prospects, in particular I think hardware can make up for dips in first and third party content. There’s no real flagship Xbox Game Studios output in the coming months to end 2022; no Forza or Halo like last year. The largest software launches are all third party titles, though there’s no doubt deals will be made to feature some major external publisher content on Xbox Game Pass.
Elsewhere, Phil Spencer blatantly teased the rumored Project Keystone cloud streaming device in a social media post. All reporting points to the dedicated streaming device being early in development, so it’s still a ways out. What it does show is Microsoft’s commitment to streaming as a new business avenue.
More immediately, there’s been activity on the Activision Blizzard buyout side as regulators worldwide continue to review the proposed $68.7 billion deal. By now, government agencies of Saudi Arabia and Brazil have issued their approvals. The major holdout is the United Kingdom’s Competition and Markets Authority (CMA) which has moved into a second phase of its inquiry into potential antitrust concerns. the CMA claims there will be impact on competition in various industry verticals, while Microsoft responded saying the concerns are “misplaced.” Most recently, the CMA is requesting feedback from the public. That ought to go well!
I remain a firm believer that the deal will eventually be approved, it’s just a matter of how long it takes as governments notoriously move at a snails pace. American and European regulators will be the key, and we’ve yet to hear from them specifically.
Well, then. That’s the first big results recap of the season. What’s your reaction to Xbox’s big Q1? Do you agree with its forecast for the holiday quarter? Feel free to drop a line here or on social media, I’m happy to chat!
Additionally, I’ll have more reactions to earnings in the coming weeks. Thanks everyone for hanging out. Be safe and spooky!
Note: Comparisons are year-over-year unless otherwise noted.
Sources: Company Investor Relations Websites,ShackNews (Image Credit),Tom Warren.
The fourth quarter is here, which means it’s time for the final earnings season of 2022!
And with that, I’m here to host yet another earnings calendar extravaganza here at the site. I like to think of this as the premier calendar on the entire internet covering gaming, technology and media sectors! Probably, at least..
(Mainly because no one else is a big enough nerd to compile it.)
Every quarter here, I gather up a list of dates for companies presenting their latest financial reports and sharing how their business is faring with analysts and investors alike. This time around, it’s for the quarter or other time frame ending in September. It now features over 100 companies!
The next few weeks are going to be busy and intriguing, based on a variety of macroeconomic and industry-specific pressures hitting companies. Certain economies are experiencing contractions in output and labor markets yet higher prices across the board, leading to potential recessions or stagflation scenarios. There’s also the year-on-year comparisons to highs of pandemic spending, in particular for gaming and mobile. People may not have as much discretionary income as recent years, leading to more calculating buying habits outside of the essentials.
Even so, I expect many results will be slightly more upbeat than last quarter. Especially when it comes to consumer electronics companies and device manufactures, since there’s certain indicators that supply is improving and part costs might be hitting a plateau.
What’s the best way to prepare to follow all the goings on this season? Well, saving the above image and visiting our handy Google Sheets link below. Please shoot a message via email or social media with any issues.
That said, read below the proverbial fold to see three companies I’ll be watching closely. Thanks for hanging out! Be safe, everyone.
I’m quite optimistic as major third party developer and publisher Electronic Arts reports its second quarter of fiscal year 2023 as the calendar turns to November. It was one of the few gaming companies to generate growth last quarter, mainly due to its business mix skewing towards live services and ongoing franchises. Its flagship Madden NFL 23 launched in August, thus will contribute greatly to the latest quarter. The company has notably invested in both racing games and mobile in recent years, with F1 22 zooming to a good start back in July. Then there’s the ever-present Apex Legends which has stepped into the role of being EA’s main shooter series as Battlefield regroups. Executives will also provide updates on its upcoming product pipeline with titles like Dead Space remake, PGA Tour 2023, Star Wars Jedi: Survivor and Need for Speed Unbound.
Sony Corp (SNE): Tuesday, November 1st
After a somewhat soft start to its 2022 fiscal year last quarter, Sony is also set to release its second quarter results in early November. While the Japanese consumer tech conglomerate raised its overall revenue forecast for the full year, it reduced guidance for the PlayStation division. Especially for profitability. Intriguingly, it reiterated the original 18 million unit sales target for PlayStation 5 hardware, implying a level of bullishness for the console business during the coming holiday season and beyond. There have been signs of improved inventories and supply chain easing, with PlayStation console sales increasing lately in major markets. Sony will also benefit from new third party releases like the aforementioned Madden NFL 23, among others, plus The Last of Us Part 1 and PC ports of select franchises. I’m also curious about the impact on its services output now that its rebranded PlayStation Plus has been on market for a quarter. Overall, I’m expecting a slight contraction in quarterly performance for its gaming segment yet hardware will likely stay on target.
CD Projekt SA (CDR): Monday, November 28th
It’s been an eventful year for CD Projekt, which reports fiscal 2022 third quarter results late in November. As part of its broader approach, the Polish developer and publisher has moved to a multi-project pipeline with a good portion of its resources focused recently on fixing Cyberpunk 2077 plus pumping out its new generation update while others are working on The Witcher 3: Wild Hunt‘s own update, still allegedly scheduled for 2022. Because of improvements and its Edgerunners anime show, Cyberpunk 2077 has experienced a resurgence lately that will certainly benefit this upcoming report. Then, earlier this month, CD Projekt shared a blowout strategy update that includes a bevy of new projects: an expansion and sequel to Cyberpunk 2077, at least three new Witcher universe titles and a brand new IP under the code name Project Hadar. I’ve been vocally skeptical of management since it rushed out Cyberpunk 2077 almost two years ago. This sort of transparency and realignment is reassuring, though only if the company can deliver on its myriad of promises. Which is quite the big “if” in my opinion.
Sources: Cash Macanaya (Image Credit), Company Investor Relations Websites.
First it was Microsoft. Then it was Sony. Now it’s time for Nintendo to get in on the action, reporting its first quarter fiscal 2023 (already!) financial results out of Japan today.
Like trends seen at other console manufacturers, Nintendo’s numbers were mixed with a sprinkling of positive highlights and major milestones. The Kyoto-based manufacturer and publisher is experiencing normalization back towards pre-pandemic levels, facing the impact of a high comparable last year, hardware supply challenges, inflationary pressure plus a lighter lineup of summer blockbusters.
During the three months ending June, Switch passed a major milestone in terms of its global unit sales. It’s now become only the third home console ever to surpass the 110 million units shipped threshold, sharing such rarefied air with Sony’s PlayStation 2 and PlayStation 4. Even amidst chip shortages going into its sixth year on market, the Switch is persevering.
Even so, Nintendo’s financials proved to be weaker than the same time last year. Both revenue and operating profit experienced declines, the latter in the double-digit range. Gains due to a weaker yen and Switch OLED’s higher contribution couldn’t outweigh pressure from chip shortages and people returning to experiential spending elsewhere. It’s also important to keep in mind how the last two years have been outliers, in many respects.
“Positive factors included the depreciation of the yen and the addition of Nintendo Switch OLED Model with its high unit price to the hardware lineup,” executives shared in the company’s presentation. “But hardware production was impacted by factors such as the global shortage of semiconductor components, resulting in a decrease in hardware shipments and subsequent decline in overall sales.”
This is partially due to lower software unit sales, as Switch saw less than half as many “million-sellers” in this year’s fiscal Q1. New releases centered on casual sports, as both Nintendo Switch Sports and Mario Strikers: Battle League hit during this window, and both became million-sellers. Kirby and the Forgotten Land continues its excellent performance, becoming the best-selling game ever in the mainline Kirby franchise. Like usual, Nintendo’s software results were bolstered by ongoing momentum from the likes of Mario Kart 8, Animal Crossing: New Horizons and the healthy Ring Fit Adventure.
Nintendo, and I, expected this sort of movement from last year’s highs based on things like the general release slate and various macroeconomic factors. Which is why the company reaffirmed annual guidance around sales, profitability, hardware and software units. I’ll write a bit later about my own forecasts given this framework.
There’s not a moment to waste! It’s time to slide right into the numbers. Get ready for two whole galleries of images, the first from Nintendo’s presentation and the second a grouping of my own charts displaying key financial indicators.
During this April to June time frame, Nintendo generated around $2.37 billion in revenue or 5% lower than last year when measured in local currency. Operating profit totaled $784 million, representing a 15% drop on rising expenses mainly associated with Switch marketing and game development.
It’s a classic mean reversion I’ve written about for similar results recently, a dip towards more normalized spending after two years of substantial boosts from the pandemic. While COVID and its variants are still present, there are more people vaccinated which means they are turning to other types of entertainment outside the house. That is, when they can afford it. People’s hard-earned cash isn’t going as far lately as many countries suffer from the worst inflation in decades.
There’s also the more technical element of yen depreciation, which ends up hurting Japanese companies whose primary business is conducted overseas. This leads into Nintendo’s latest regional breakout which saw 44% from The Americas, a number consistent with last year’s split. Then it’s Europe at 26%, up from 24%. It follows that Japan now represents only 20% of Nintendo’s business, down from 22%. This means that only one-fifth of its revenue is gained locally, meaning a weaker yen has a significant effect on its sales.
Now I’ll dig into product categories underlying Nintendo’s quarterly output. Software and related content comprised 56% of Q1 revenue, up from 53%. It follows that Switch hardware made up the remaining 44%, down compared to the 47% a year ago. What this indicates is hardware is losing ground at a more rapid pace than software, as the latter benefits greatly from ongoing events or downloadable content for legacy titles. If it wasn’t for the Switch OLED model, this skew would be even more towards software.
There are two charts in the below gallery showing the trend of quarterly revenue and profit, where we see the declined compared to recent years however still trending above that from fiscal 2019. Then there’s the two charts which smooth out these results by showing trailing 12-month figures, as I add up the latest four quarters. Trailing annual revenue is right near $13 billion for Nintendo, severely hampered by the yen weakness when converted to dollars. Operating income over the last year is $4.43 billion. This helps keep the overall business in context, rather than focusing strictly on shorter-term movement.
Using these recent annual figures, I’d like to compare Nintendo’s results to industry peers in Tencent, Sony and Microsoft. I will preface this by saying the conversion from yen is really taking a toll on Nintendo and Sony right now. Tencent’s $33 billion in annual gaming revenue is untouchable, though it’s the only one of these that hasn’t reported this quarter and I expect it could decline. Sony’s $21 billion from PlayStation is up next, then Microsoft’s Xbox revenue of $16.22 billion comes in third. If Microsoft’s accounted for Activision Blizzard, which it won’t until next year, it would rival Sony’s output. Which means Nintendo’s revenue is on the lower end at $13 billion. However, Nintendo’s $4.43 billion in operating profit over the last 12 months is higher than PlayStation’s $2.44 billion.
Focusing now on Nintendo’s console business, Switch shipped 3.43 million units globally during the quarter. That’s down 23% from the 4.45 million in Q1 of fiscal 2022. It’s the lowest number of Switch hardware shipments since 3.28 million in January to March 2020.
The base model felt the most precipitous drop, moving down 60% to 1.32 million of the quarterly total. Switch Lite posted a 48% dip, shipping 590K. Which means the Switch OLED model was the best-selling in the family during the last three months, moving 1.52 million boxes. That brings the lifetime total of just Switch OLED to 7.32 million since October 2021. This was precisely Nintendo’s intention, to shift buyers towards the fancy, higher-priced OLED.
Overall, Switch lifetime shipments now total 111.08 million. Compare that to lifetime sales of 89 million at this same time in calendar 2021. In an ironic twist, Switch is now the third home console AND the third portable device to pass the 110 million mark. PlayStation 2 and PlayStation 4 reached 155 million and 117 million, respectively. Separately, on the handheld side, Nintendo’s own Nintendo DS achieved 154 million while Game Boy/Game Boy Color settled at almost 119 million. For now, the PlayStation 4 is in the Switch’s sights, especially since Sony stopped reporting its prior generation hardware figures just this quarter.
As referenced in an earlier slide, sell-through to consumers for the quarter ending June declined for the second year in a row. While the company didn’t specify the exact amount, the trend-line is clear at this point in the life cycle. Especially given the tremendous impact from Animal Crossing: New Horizons back in March 2020, when sell-through of Switch consoles peaked.
Even amidst lower global hardware sales, Switch is still holding up among its counterparts in its biggest market. That’s according to the Q2 2022 report from industry tracking firm The NPD Group, an often cited source here at the site. Switch was the best-selling console in the U.S. during April to June when measured by units, and is still the year’s best-seller by this metric as I wrote earlier in the month. This dynamic makes sense given the Switch’s more attractive pricing and consistent availability at retail, plus supply challenges having an outsized effect on new generation consoles.
Switching over to Nintendo’s software sales for the quarter, it’s a bit brighter than its hardware counterpart. In that it didn’t see as big a decline from a unit standpoint.
Total game shipments in the period ending June declined to 41.4 million, down 9% from the prior year’s 45.29 million. Namely because it was a quiet time for those million-sellers: only four games sold this amount in the period alone, and none of them were from third parties. Compare that to 9 this time a year ago, 7 from Nintendo and the remainder from external partners. So, while there are select titles hitting this threshold, there were less of them amidst a sparse release calendar.
Because of this, lifetime software unit sales for Switch reached 863.59 million. That’s up from 892.18 million back in March, and 587.12 million back in June 2021. Might it cross 900 million by September? (Yes.)
Nintendo decided to kick off the summer with two sports titles during the three months ending June, launching both Nintendo Switch Sports and Mario Strikers: Battle League.
Nintendo Switch Sports scored 4.84 million shipments in its debut quarter. It’s tricky to compare this to prior mainline Sports releases, the last major one being Wii Sports Club in 2014, itself a remake of the original 2006 Wii Sports which launched alongside the ever-popular Wii console. There’s also Wii Sports Resort that released in 2009 at 1.61 million. We could also compare to Wii Fit, which started at 3.6 million. Any way you slice it, it’s a strong start to a title Nintendo expects could keep up momentum over time as more content rolls out.
Mario Strikers: Battle League spent less time on sale after its mid-June launch, shipping 1.91 million copies since. It’s the first mainline Mario Strikers title in 15 years, back when Mario Strikers Charged accumulated 1.71 million in its first quarter. That puts this latest game slightly higher than its predecessor’s initial sales.
The last flagship Switch game of the quarter was Fire Emblem Warriors: Three Hopes. This one hit market during the final week of June and is co-published by Koei Tecmo. Nintendo hasn’t publicly shared any results for it just yet.
As for earlier games, Kirby and the Forgotten Land continues its expansion, which is natural for Kirby. It’s scooping up sales left and right, amassing 4.53 million units to date after selling-in another 1.88 million in fiscal Q1. During its first 15 weeks on sale, it’s already sold-through over 4 million copies. That’s the best cumulative sales to consumers ever for the series, already outpacing the lifetime total of 2018’s Kirby Star Allies.
The best-selling first party Switch game list is unchanged at the top. Mario Kart 8, of course, somehow sold another 1.48 million to bring its lifetime total past the 46 million mark, settling at 46.82 million. Animal Crossing: New Horizons is at 39.38 million, while Super Smash Bros. Ultimate fought up to 28.82 million.
Fan favorite Ring Fit Adventure remains in the Top 10 best-selling on the platform, moving 450K units up to 14.54 million. It’s creeping up on a couple Pokémon games, I’d wager it can move into 8th place on the lifetime Switch sellers list by year-end.
Speaking of Pokémon, for 2022 to date in the U.S., Pokémon: Legends Arceus remains on the best-selling premium list, currently catching the third spot as of June. That’s according to The NPD Group, and it doesn’t even include the game’s digital portion. The aforementioned Kirby and the Forgotten Land and Mario Kart 8 are presently 8th and 9th, respectively.
Another growth avenue for Nintendo last quarter was digital sales of software, rising 16% to $679 million. That comes out to roughly 29% of its total revenue. Nintendo also shared that more than half of software sales are now digital, at 53% of the total. This is up from 47% last year, partially due to downloadable content like Animal Crossing: New Horizons Happy Home Paradise and the Nintendo Switch Online + Expansion Pack offering.
Unfortunately, there’s no new data on Nintendo Switch Online subscription count. The most recent update from the company was 32 million in September 2021. Management did state that sales from this online service are “showing growth,” just didn’t indicate by how much.
And as we’ve seen many times before, Nintendo’s engagement stats are lacking. Its “Annual Playing Users” metric is now up to 104 million, compared to 102 million last quarter. To me, this doesn’t mean much other than people that buy a Switch turn it on at least once in the last 12 months. Not the most descriptive of metrics.
It’s a decent start to the new fiscal year for Nintendo, seeing drops where expected on the hardware side and maintaining solid results for both new games and ongoing software spending. It’s too early for the forecast to change, even given the amount of uncertainty that exists on the supply side plus game release dates moving around soon.
“Due to delays in the procurement of components such as semiconductors this year, we have not been able to conduct production as planned.” management said. “However, we expect procurement to gradually improve from late summer towards autumn, giving us a clearer outlook regarding production for the remaining calendar year. In preparation for the holiday season, we will leverage appropriate means of shipment, and work to deliver as many Nintendo Switch systems as possible to consumers in every region.”
As a quick reminder on its guidance, Nintendo anticipates sales will decline in the single digits this fiscal year to roughly $12.34 billion at the current exchange rate, a figure in dollars that could improve if the yen improves. Operating profit is expected to take a bigger hit, dipping 16% to under $3.9 billion. Which would be the lowest result since the pandemic begin, yet still above levels prior to that point.
It’s on the conservative side, which is where I’m at as well. When there’s this many unknowns, both at a macro level and within the games industry, I tend to be cautious. I think it’s prudent for executives to do the same, especially for a company like Nintendo which isn’t as diversified as other consumer technology peers.
I continue to believe there won’t be any substantial new Switch iterations over the next few quarters. Instead, Nintendo should be working more on a successor than a model change. As for units, I’m reiterating my forecast of 20 million to 21 million which is a bit lower than Nintendo’s 21 million guidance. Right now, I’m slightly more bearish than management.
Another portion that Nintendo left unchanged is the guidance of 210 million software units selling in the year ending March 2023. Nintendo reiterated that stance, which I lean towards being a bit high unless a couple key titles hit market in this time frame.
Short term Xenoblade Chronicles 3 launch a few days back. Kirby’s Dream Buffet is a smaller title slated sometime this summer. Next up, there’s a pair of “third in the series” entries in Splatoon 3 and Bayonetta 3, launching in September and October respectively. Out of these, I’m way upbeat on the latter, the first mainline Bayonetta game since 2014.
I expect Pokémon Scarlet and Pokémon Violet, which are introducing all new pocket monsters, could potentially break records for early sales for the franchise on Switch and overall upon debuting in November. Granted, there’s been a lot of Pokémon lately. That won’t stop the series from selling, especially when there’s a new generation to collect.
The Legend of Zelda is the proverbial, hm.. wild card of the bunch. Will there be a new version of something like Windwaker soon? Might Nintendo put out a Switch version of Twilight Princess? That would be well and good, and certainly attract demand. It really comes down to whether the fabled Breath of the Wild sequel hits by March 2023. At least for now, it remains listed as Spring 2023 in Nintendo’s reporting. If I was to guess, I’m mildly confident it’s out this fiscal year.
Finally, there’s also Advance Wars 1+2: Re-Boot Camp and Metroid Prime 4. Both stayed as to-be-announced in Nintendo’s presentation. If anything, I’d wager the former has a better chance of hitting this fiscal year because it was scheduled to be out already. I don’t see the latter until the back half of calendar 2023, the earliest.
With its latest hardware sales milestone and a lot of good games before its life cycle ends, it’s still an exciting time to be a Switch owner. Especially for fans of JRPGs, sports games and Pokémon. Investors may be wearier, though shouldn’t let declines from all-time highs distract from Nintendo still being in its best financial shape since the Wii era.
Thanks for visiting the site and checking out this analysis. Feel free to drop a comment here or on social media. Enjoy the remainder of earnings season everyone!
Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.66.
Sources: Company Investor Relations Websites, The NPD Group.
Mixed as they were. Overall sales and profit grew for Sony overall, in part due to a weaker yen and boosts from the likes of Pictures and Music. However, sales within its PlayStation business declined amidst a variety of factors. This was mostly expected based on a high comparable last year, a limited suite of first-party exclusive games plus signs of a broader slowdown in discretionary spending.
Sony’s Game & Network Services (G&NS) segment sales declined in the low single digits over the last 3-month period, marking the lowest Q1 output since fiscal year 2019. Profitability took an even bigger hit, moving down almost 40%, due to general weakness in software plus increased spending on its pending projects.
Hardware proved to be the main bright spot, experiencing a double-digit revenue rise as PlayStation 5 reached 21.7 million in lifetime units shipped. That’s after selling-in 2.4 million boxes in the April to June period, up ever so slightly from last year’s 2.3 million.
Sony also reduced its financial forecast for the PlayStation business, revising downward both revenue and profit metrics while highlighting it expects a bigger decline in 3rd-party software sales. Profit will also be impacted by closing the purchase of Bungie, which went effective a couple weeks back.
Somewhat surprisingly, management reiterated its PlayStation 5 hardware shipment target at 18 million consoles for full year. I tend to disagree, personally. I believe Sony’s management is exceptionally bullish in the face of continued pressure from multiple angles, including supply chain and broader price pressure. I expect reduced guidance within the next two quarters unless input costs drastically improve.
“At this point in time, we have made no change to our 18 million unit sales forecast for PlayStation hardware in FY22,” said executives in the company’s prepared remarks. “But since we are seeing a recovery from the impact of the lockdown in Shanghai and a significant improvement in the supply of components, we are working to bring-forward more supply into the year-end holiday selling season.”
Time to move forward into recapping the underlying financials and make some fun predictions of my own!
First referencing the slides from Sony in the above gallery, these display how it generated $17.86 billion in revenue during the quarter which is up 2%. Operating profit rose 3% to $2.37 billion.
Both these set all-time highs for a first quarter, when measured in local currency. I’m using an average exchange rate to convert into dollars.
Given the environment these are very good, even if slight, gains. Granted, it’s worth reiterating how a weak yen will help top-line growth for global consumer companies like Sony.
That currency impact is on display within the PlayStation business, where its top-line would have been even worse if the exchange rate impact wasn’t as robust. Sony’s gaming division saw revenue dip 2% to $4.67 billion. With higher costs recently, operating profit declined a precipitous 37% to $408 million.
As the G&NS segment slide shows, the top-line revenue includes a substantial foreign exchange rate impact. It also accounts for a decline in both 1st and 3rd party software, a trend consistent with Xbox’s quarter as well. Compared to this time in 2021, people simply aren’t spending as much time or money on software and related content, even if they still have demand for hardware.
This exact dynamic is reflected in the product category slide from its supplemental information and the colorful chart I’ve compiled. Sales from Physical Software, Digital Software and Add-On Content all fell double-digits in the quarter. Hardware and Others, which includes peripherals and first-party game sales not on PlayStation platforms, boosted 12% and 28% respectively. Network Services is also proving to be resilient right now, moving up a modest 4%.
The two additional charts provided expand Sony’s reporting over the latest 12-month period, a method I use to smooth out results and provide better perspective on how companies are performing. It smooths seasonality and considers the last four quarters in aggregate. On the revenue side, PlayStation revenue topped $21 billion. Which is up compared to this time last year when it was $20.6 billion. Operating profit is also up year-on-year, from $2.33 billion in the 12 months ending June 2021 to $2.44 billion now.
What does that mean? Well, in the scope of recent years, these quarterly drops aren’t as damaging as they seem because the last few quarters have been abnormally high for the games industry. It’s that normalization I’ve written about before, as things like global inflation and folks seeking other forms of entertainment enter the picture.
In comparison to industry peers like Tencent, Microsoft and Nintendo, Sony’s current gaming output is near the top. Tencent’s recent annual figure is roughly $33 billion, continuing its reign as the biggest gaming company in the world by sales. Then Sony slots in next at $21 billion, which is lighter lately because it’s converted from a currency in free fall. Microsoft recently reported $16.22 billion, while Nintendo’s latest from last quarter is around $15 billion. The last two years have been a healthy time for the biggest publishers, manufacturers and developers, given all that’s happened, so some headwinds now are natural.
In addition to the financial metrics I love to highlight, Sony shared a variety of additional figures on software sales, digital contribution, services and engagement factors. All very important in gauging the well-being of PlayStation as a business.
First, I’ll talk software sales, the bread and butter of any gaming ecosystem. We already know that revenue from these sources declined in the double-digits, which is reflected in unit sales as well. Full game software on PlayStation platforms dipped 26% to 47.1 million units. Within that, first party titles (those published by PlayStation) lowered even further, down 39% to 6.4 million.
This period includes the second quarter for titles like Horizon Forbidden West, Gran Turismo 7 and MLB The Show 22. It could mean sales a few weeks out from launch are lower because people are playing less, which they are, or potential buyers are waiting until discounts because many new generation titles now start at a higher price point. Which extends the length of a title’s sales trajectory, though earns Sony less per unit sold over time.
Those gamers that are buying software for PlayStation platforms are doing so via its digital storefront more than ever. The number of digital game units sold compared to the total reached 79%, which ties an all-time high set back during the quarter between January and March 2020. To say it another way, fiscal Q1 had the same digital proportion as around the beginning of major quarantines during the early parts of the pandemic.
With respect to player count and engagement, it’s another mixed bag. PlayStation Plus memberships rose 1 million compared to last year’s number, currently reaching 47.3 million subscribers. It’s almost the same number as last quarter, down only around 100K. On the other hand, the key metric of Monthly Active Users (MAUs) showed weakness, going down from 105 million last year to 102 million now.
Sony’s explanation is that hours spent on the platform came in below estimates. Which fits with my expectation, given the release slate and other entertainment options.
“Total gameplay time for PlayStation users declined 15% year-on-year in Q1,” management said in its remarks. “Gameplay time in the month of June improved 3% compared with May and was down only 10% versus June 2021, but this is a much lower level of engagement than we anticipated in our previous forecast.”
This report also marks a bittersweet milestone, as Sony no longer reports hardware sales for the PlayStation 4. The 2013 console ends its historic run around 117 million units sold globally. That’s enough to be the second best-selling home console of all time behind only the PlayStation 2. Where does PlayStation 5 stack up against its predecessor right now? Well, PlayStation 4 had shipped 25.4 million by its seventh quarter on market, meaning PlayStation 5 is lagging by almost 4 million units. Congrats to everyone behind the PlayStation 4, one of the highest-selling devices across the history of gaming.
Stepping back to take it all in, Sony’s fiscal first quarter results were mildly impressive overall while expected temporary weakness hit the PlayStation segment. Three months ago, I wrote about being more cautious than Sony’s management on its gaming prospects for the coming fiscal year. So, this sort of decline fits with that hypothesis, which I’m continuing here.
“The results forecast we announced in May incorporated an outlook for the growth of the global economy developed in January as well as major risks contemplated at the time of the forecast such as the direct impact of the situation in Ukraine and the impact of COVID-19 in China,” executives noted in the company’s prepared remarks.
The highest profile aspect of guidance is PlayStation 5 hardware, where Sony stubbornly kept the 18 million unit sales target for the year ending March 2023. While the next couple quarters will feature software titles that can be system-sellers, my problem is how chip prices could rise in the double-digits over the remainder of this year, and shutdowns or lockdowns will continue to impact part suppliers in the pipeline. My current target is between 15 to 16 million sold this fiscal year for PlayStation 5, implying it still has upwards of 13 to 13.5 million to go.
I also want to address a question that arose during today’s earnings call. Per a transcription from Video Games Chronicle, executives were asked about the potential for a price increase for PlayStation 5. That’s right, an increase! In fairness, Sony has recently bumped up prices for certain items in its local Japanese market plus Meta increased the cost of its Quest 2 virtual reality headset by US$ 100.
Even given the challenges faced by electronic manufacturers right now, I think it’s potential product suicide to drastically raise prices on consumers that are already cash-strained. Especially when it comes to the PlayStation 5, which already sees inflated secondhand prices amidst rampant scalping and limited inventories. Thankfully, Sony Chief Financial Officer (CFO) Hiroki Totoki agrees, for now, and dismissed the question.
On the financial forecast side for the remainder of this fiscal year, Sony raised its sales estimate by 1% while simultaneously reducing its operating income projection by 4%. For PlayStation alone, it revised revenue and profit downward by 1% and 16% respectively. That PlayStation profit reduction stands out the most, factoring increased costs associated with closing Bungie and Haven Studios acquisitions.
I’d say I’m cautiously bullish on this update. Even with big blockbusters like Madden 2023, FIFA 2023 and the highly-anticipated God of War Ragnarök on the horizon in the coming months, I’m worried about those diminishing engagement hours, lower spend on ongoing content and, of course, stagnating hardware production. Uncertainty is the enemy of those who make predictions, so I’ll keep my tentative outlook and say I think we might see lower results.
One wildcard in this scenario is PlayStation VR2, which has a launch roadmap that’s apparently in full swing according to PlayStation Blog. I continue to be shocked by how soon Sony is showing the device, which I didn’t expect for at least another year or more. It seems like it’s been in development for a long while, though release has been pushed back given the difficulties of supplying PlayStation 5, which is necessary to run the headset.
I don’t know if it’s a wise decision to spend on making and marketing both PlayStation 5 and PlayStation VR2 during a holiday season where costs are moving up across the board, and consumers can barely find the console at retail. Does Sony intend to launch the peripheral before March 2023 to meet that fiscal year deadline? Can it match the US$ 400 price tag I think it needs to be attractive? Based on where it’s at in development, I can see it. Even if I don’t necessarily agree with the move.
Thus concludes another recap session during this busy earnings season. Hop over to my full calendar for more on when other companies are reporting in the coming weeks, and thanks for taking the time to visit the site! Be safe, friends.
Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.4.
Sources: Company Investor Relations Websites, Getty Images (Photo Credit), Meta, PlayStation Blog, Video Games Chronicle.
It’s here. My first big recap article of this latest earnings season!
In case it wasn’t clear from my recent calendar post, late July signals the start of that season. Let’s kick it off with Microsoft’s fourth quarter fiscal 2022 results, which means I’ll cover both quarterly and annual figures. The more, the better!
This latest 3-month period featured somewhat mixed results that capped off a historic year for the company’s gaming division, where it achieved the best ever fiscal revenue for Xbox as a brand.
As anticipated, gaming revenue declined in the quarter ending June 2022, dipping 7% to roughly $3.45 billion. Like many results lately in the industry, it sounds a lot worse than it was. This number is the second best Q4 in Xbox history, trailing behind only last year’s massive $3.71 billion spike.
It’s one of those “good enough” scenarios, falling perfectly in-line with the company’s, and my, expectations of a mid-to-high single digit decline. Either a big beat or epic miss would have been much more newsworthy.
What’s important is the impact on fiscal year revenue from Xbox, which moved past $16 billion for the first time ever. That’s yet another all-time year for gaming at Microsoft. It’s the sixth straight fiscal year where Xbox has achieved record sales.
Underlying this growth was upward movement in Content and Services, which houses software sales along with the likes of Xbox Game Pass and cloud offerings. A constant here has been claims from management that Xbox Game Pass subscriptions have been steadily increasing, although the team still hasn’t shared an updated sub figure since the 25 million I wrote about back in January.
On the other hand, Xbox hardware sales have stagnated over the latest 12 months which resulted in a double-digit decline during the year. Which is curious, considering comments from Chief Executive Officer (CEO) Satya Nadella indicate the family of devices is selling better than ever.
“We’ve sold more consoles life-to-date than any previous generation of Xbox and have been the market leader in North America for three quarters in a row among next gen consoles,” Nadella said in his prepared remarks on the earnings conference call.
The declining revenue along with high unit sales indicate a major talking point to me: There’s a high proportion of unit sales coming from the lower-priced Xbox Series S. Which fits with mounting evidence and anecdotes that these are much easier to find and plays from a manufacturing cost standpoint because they are less expensive to make. Plainly, Microsoft and its suppliers can’t produce enough high-end Xbox Series X boxes to grow hardware revenue. I expect high input costs to continue, thus this trend will keep up into the new fiscal year.
Now I’ll dig into the underlying numbers and highlight key trends from this report.
Peeking first at the above slides from Microsoft, they show that 7% decline in quarterly gaming revenue which gets us to that $3.45 billion figure. Not bad considering Xbox achieved a best-ever Q4 result this time last year!
The main reasons for lower sales proved to be people spending less time and money on the platform over those 3 months, which impacted purchasing of both first-party and third-party software. The main bright spot was growth in Xbox Game Pass subscriptions. I’ll go more into these segments in a bit.
Expanding to a longer time frame is my chart, which shows 12-month trailing sales figures for the Xbox business unit. This shows a couple major points.
First, if we focus strictly on each fourth quarter, it displays that record high fiscal year from Xbox: $16.22 billion between July 2021 to June 2022 compared to the prior record holder of fiscal 2021 at $15.37 billion.
Subsequently, the full chart illustrates last quarter was the first decline for trailing annual gaming sales since back in Q2 of fiscal 2020. That initial rise back then corresponds to quarters leading into the start of quarantines during the pandemic, and the figure has since leveled off right around $16 billion lately. Still, it’s only a 2% decline from last quarter’s all-time best. Which is something I’ve expected given the strong prior years and macroeconomic forces at play, including inflation.
Note: These dollar totals are based on growth rates over the prior year. Microsoft has yet to publish its 10K filing, I’m confident the math will be very close.
Where does this put Xbox sales right now in comparison to major peers in the games industry?
Since Microsoft is the first to report, I’ll use the latest annual figures for the likes of Tencent, Sony and Nintendo. Tencent is the clear leader of the pack, aggregating to annual sales of $33 billion. Sony is up next, reaching $24.4 billion. That number will refresh later this week when the company reports on Friday. That leads into Microsoft’s $16.22 billion, which will increase when the Activision Blizzard deal closes to somewhere between $23 to $24 billion depending on redundancies and cost-savings. Lastly, Nintendo is close to Microsoft’s current figure, hitting $15 billion in yearly sales.
The main caveat I’ll note when comparing across the industry is how revenue is one of many metrics used to gauge financial strength. I’d prefer profitability when available, however Microsoft does not report this granularity for Xbox alone.
That doesn’t mean we can’t glean anything on Xbox’s profit contribution from this recent report. The broader segment of More Personal Computing (MPC) experienced an operating income decline of 5% as expenses rose 8%. Microsoft called out Windows, Search and news advertising as main drivers of this weakening profit dynamic, which indicates that gaming’s contribution likely remained consistent. Which I’d say is good news, especially for the cost of making consoles.
For the quarter ending June 2022, both of Xbox’s main segments of Xbox Content & Services and Xbox Hardware suffered declines. Although the latter was more precipitous, neither was very concerning to me because of where we are in the broader cycle plus supply conditions being nowhere near normal.
Starting with Content & Services, this segment contributed 6% lower sales than a year ago. Which, like total Xbox revenue, was in-line with the company’s guidance and my own expectations. This equates to $2.77 billion in Q4, implying it contributed around 80% of the total. Another way to consider this is 4 out of every 5 dollars spent on Xbox was on software, downloadable content, subscriptions and non-hardware purchasing.
In fact, the latest annual contribution from Content & Services is a big positive for the Xbox brand. It’s now above $12.5 billion, or 77% of the total, a dollar figure which is actually up 3% compared to the prior year. That means despite weakness in the fourth quarter, Content & Services had its best fiscal year in reported history.
The main factor, of course, is Xbox Game Pass momentum and its proven impact on spending habits for ongoing subscribers. While executives refuse to share anything beyond the 25 million figure, I estimate it’s closer to 30 million by now. I’d wager it hasn’t breached that milestone. Because otherwise Microsoft would have said so!
There’s also the element of offerings like Xbox Cloud Gaming plus recent partnerships with companies like Epic Games and Samsung. Microsoft is benefiting from rounding out its ecosystem play and expanding how and where people play, which has a tangible effect on revenue growth even as individual title sales may slow.
“We’ve partnered with Epic Games to make Fortnite available for free via browser,” noted Nadella in an example of this strategy. “Over 4 million people have streamed the game to date, including over 1 million who were new to our ecosystem.”
Hardware is proving to be the more challenging business line for Xbox, declining 11% in the quarter to under $680 million. That’s the second lowest output in the past seven quarters, no doubt impacted by higher margins and continuously low availability of the premium Xbox Series X version.
Along the lines of its counterpart, the annual numbers are more reassuring. Microsoft generated $3.7 billion from Xbox console sales in fiscal 2022, which is up from $3.2 billion previously. That’s a gain of nearly 16%. This is mainly due to excellent performance during the initial stages of this fiscal year, meaning hardware has trailed off recently.
That’s not to say demand isn’t there. It’s mainly that Xbox is selling its lower-priced SKU, which doesn’t boost the top-line as much. Last quarter, I posited that lifetime unit sales of Xbox Series X|S could be between 14 million and 14.5 million. After this latest period, I’m estimating it at 16 million to 16.5 million.
It’s unfortunate we don’t know for sure, especially since Sony and Nintendo are more transparent.
The last numbers I’ll cover before wrapping up are for Microsoft as a whole. The firm generated $51.9 billion in revenue, up 12%. Operating profit reached $20.5 billion, or an increase of 8%. Quarterly sales from Microsoft Cloud moved past $25 billion for the first time ever, jumping 28% year-on-year.
Focusing on the More Personal Computing (MPC) business unit, it was responsible for $14.4 billion in sales. This means Xbox, at $3.45 billion, made up almost a quarter of the segment’s total.
These results are quite staggering as the company benefited greatly from hybrid working models and enterprise cloud usage. Still, quarterly revenue and earnings both missed analyst consensus estimates.
During the full fiscal year, Microsoft posted $198 billion in revenue and $83 billion in operating profit. It’s hard to even understand these numbers!
Now to look ahead, let’s focus on gaming within the broader company.
According to Chief Financial Officer (CFO) Amy Hood, here’s the rundown of guidance for the first quarter of fiscal year 2023, which runs from this July to September. Note this does not include any impact from the Activision Blizzard deal, which it still expects to close by June 2023.
Gaming revenue is forecasted to decline in the “low to mid single digits” driven by a drop in first party software. Content & Services has that same exact guidance. Though the management team does anticipate Xbox Game Pass subscriptions will grow again and thinks Hardware will rise as well, albeit didn’t provide any more specifics.
Let’s assume “low to mid single digits” means a dip of 3%, that should be a good barometer. This implies total quarterly revenue from Xbox of around $3.48 billion, or the second best Q1 on record. Then, for both Content & Services to decline and Hardware to increase, the former must decline 4% or more. Which would follow that Hardware can increase a percent or two and the math still works out.
Personally, I do expect a slight decline in total Xbox sales during the current quarter. There’s a handful of major 3rd party titles, including a new Madden game in August, and Xbox Game Pass will certainly have a few great additions. It’s just last year’s high was powerful, it remains a tough comparison. I’m not so sure about Hardware gains, that’s where I’m skeptical. I’m expecting flat to slightly negative contribution there unless something changes with the split of Xbox Series S to Xbox Series X.
On a bit longer of a timeline, where’s the growth other than the traditional means? There’s the clear upside of bringing Xbox Cloud Gaming to other television brands outside of Samsung. Then the substantiated plus rumors of the team developing a dongle-like device like a Google Chromecast or Amazon Fire TV Stick. And, of course, people calling for Xbox to make a handheld now that both Nintendo and Valve have active portable gaming devices.
“As announced last year, we’ve been working on a game-streaming device, codename Keystone, that could be connected to any TV or monitor without the need for a console,” a Microsoft spokesperson said to Windows Central, who first reported on the cloud stick’s development.
“We are constantly evaluating our efforts, reviewing our learnings, and ensuring we are bringing value to our customers. We have made the decision to pivot away from the current iteration of the Keystone device. We will take our learnings and refocus our efforts on a new approach that will allow us to deliver Xbox Cloud Gaming to more players around the world in the future.”
So, I’m a believer in the expansion of cloud and whatever this Project Keystone turns out to be. I don’t expect the dongle to hit market this fiscal year, so that will impact future time frames. And I really don’t think an Xbox handheld fits with its direction, for a multitude of reasons that I’ll probably write about at some point! What I do expect is for Xbox Game Studios to ramp up its output in 2023, featuring titles like Starfield and Redfall plus some surprises too.
That concludes Xbox’s results this quarter. I’ll be back soon with articles on other major gaming companies, and updates on social media throughout the coming weeks. Thanks for reading and be safe all!
Note: Comparisons are year-over-year unless otherwise noted.
Sources: Company Investor Relations Websites, Windows Central.
What’s the best way to cool off when global warming has you melting?
Well, it’s probably being in the shade, staying hydrated, sitting in front of a fan or pumping up that air conditioner.
Personally, I’d add checking out the latest calendar here because the latest earnings season is underway!
As long-time fans of the site know, every quarter companies gear up to report their latest results and host conference calls with analysts. It’s going to be an eventful one for gaming, media and technology as consumer spending habits are shifting lately in light of rampant inflation and higher interest rates.
I expect to see mixed results and significant headwinds, especially among those companies with focused revenue streams. The past couple years brought substantial growth in these spaces and it’s time for mean reversion to take over. Though a general movement towards subscriptions and ongoing content will soften the blow of weaker product sales and supply constraints.
Going forward, I’ll have some articles up the next couple weeks summarizing results for select companies in these sectors. For now, see the above image or the Google Sheets link below for a rundown of earnings dates for 100 companies. I’ve also quickly highlighted three companies to watch in this current environment.
Note that for international firms, days are displayed in local time zones based on investor relations announcements. Stay cool and be safe everyone!
The world’s largest consumer electronics company is always a barometer for spending habits, and it reports third quarter fiscal 2022 results this week. This is a major moment to see how much inflation has affected buying and upgrading of Apple products, namely its flagship iPhone line. Analysts expect upwards of $82 billion in quarterly revenue, an increase from $81.4 billion, however earnings-per-share could decline from $1.30 to $1.16. Executives told the market last quarter to expect anywhere between a $4 billion to $8 billion hit on revenue due to supply challenges and China lock-downs. It still sounds like demand for its main products are keeping up, plus other areas like services will boost contributions. I’m usually upbeat that Apple will report better-than-expected profitability, and that’s no different this time around. Which would signal some resilience in consumer buying in what might already be a recession for certain economics, including the United States.
Unity Software Inc (U): Tuesday, August 9th
Gaming engine maker Unity reports fiscal 2022 second quarter results in early August, and has been in the news a lot lately. Not for the best reasons, I might add. It’s been very active in the merger and acquisition department for a while now. Last year alone, it purchased Parsec and Weta Digital. This year, Ziva Dynamics. Then its biggest deal is a controversial one in that it’s merging with digital app monetization company ironSource as announced two weeks back. This deal values ironSource, which has an infamous reputation for software with a history of being flagged as malware, at $4.4 billion. As part of the interview circuit alongside this deal announcement, CEO John Riccitiello had some choice words for developers making games without also considering how to monetize, calling them “f***ing idiots.” He has since apologized, of course, but the original sentiment expressed by the person who runs this company is likely to cause hesitation among those creators using Unity as a platform after the merger occurs. Not to mention, the company isn’t profitable right now so this is an important time from a financial standpoint as well.
NetEase Inc (NTES): Mid August
Mobile publisher and internet tech giant NetEase hasn’t reported a specific date yet, though it will announce 2nd quarter of fiscal 2022 release around the middle of next month. The massive Chinese is making key moves lately, notably expanding into the West by creating its first U.S. studio in Jackalope Games along with a development team called Jar of Sparks out of Seattle. It’s also partnered with the likes of Warner Bros, Microsoft and Blizzard on experiences targeting audiences around the globe. Battle royale slasher Naraka: Bladepoint launched in late June. And although it’s after the latest quarter’s close, it brought Blizzard’s Diablo Immortal mobile title to China just this week, a game that exceeded 20 million downloads before even entering this massive market. It’s also been operating locally in a more constrained environment for releases, though will benefit from the government’s easing restrictions. As some other companies saw declines, NetEase generated double-digit revenue and profit growth last quarter, driven by online game sales.
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. Nintendo’s recent results show revenue upwards of $15 billion. 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.
