Tag: Industry

Nintendo Financials & Hardware Sales Drop Double-Digits as Switch Ages in Fiscal 2025 Q1 Report

DomsPlaying

I’m here with a rare Friday recap, as everyone knows because they have studied my earnings calendar, of course.

Today in Japan, Nintendo reported results for its first fiscal quarter of 2025.

Here’s the headline numbers, during a tricky time where its storied Switch console is entering its final days and management makes moves towards the transition to its successor.

  • Revenue and operating profit declined well into double-digit territory.
  • The same goes for Switch console shipments, across all versions.
  • Switch unit sell-thru to consumers did reach a new lifetime milestone.
  • Mario Kart 8 Deluxe sold less than a million units for the first time since 2017.

It’s a tough one all around for the Mario makers, mainly due to a comparison to the company’s best Q1 ever last year due to contributions from a blockbuster film and mainline Zelda launch. Plus, the firm’s expenses are up due to investment in its next generation.

“During the first quarter of the previous fiscal year, unit sales of both hardware and software were extremely high for a first quarter,” management wrote in prepared remarks. “When The Super Mario Bros. Movie energized our dedicated video game platform business and The Legend of Zelda: Tears of the Kingdom was released, together with specially designed hardware based on that title.”

I’ll now look at the figures in more detail then provide a look ahead towards the future, a crucial time for one of gaming’s biggest and most beloved producers.

Taking a broad perspective, the main performance indicators from Nintendo’s most recent quarter ending June 2024 are below.

  • Revenue dropped 47% to $1.58B.
  • Operating income declined 71% to $350M.
  • Research & Development (R&D) expenses rose 18%.

As displayed in the quarterly charts later in this article, this was the lowest Q1 output since fiscal 2020 for both sales and profit. As Nintendo executives alluded in their notes, it’s mainly because there isn’t much driving growth right now, with the main release slate as two legacy titles with a fresh coat of paint while the firm navigates towards a transitory period.

Across product categories, here’s the breakout measured by revenue.

  • Software dollar sales made up 50.8%, up slightly from 50.1%.
  • Within that, 73% were first-party sales. Last year, it was 89%.
  • Digital represented 59% of the total, compared to 47% prior year.

Now, the regional sales ratios for its largest locales.

  • The Americas made up 45%, about the same year-on-year.
  • Japan saw a sizeable increase, from 20% to 26%.
  • Europe dropped to 21%, from 23%.

Due to the massive success of the Mario film starting April 2023, quarterly sales for Nintendo’s mobile and IP-related segment dropped 54% to $94M.

The below charts show sales and profit metrics for both this latest quarter and on a trailing 12-month basis for broader context.

  • Annual revenue is currently $9.34B, down from $11.86B.
  • Operating profit over that time is $2.55B, compared to $3.95B.
  • Both of these are the lowest since late in Fiscal 2020.

I’ll now shift focus over to the Hardware part of the first quarter report, where Nintendo shares how many units shipped and gives insight into sell-thru to consumers as well.

  • Switch saw 2.1M units shipped between April and June 2024.
  • That’s down 46%, and the lowest Q1 output since Fiscal 2019.
  • OLED experienced the largest drop of 56% to 1.24M.
  • Its older Lite version sold 330K, a decline of 23%.

“There were no such special factors in the first quarter of this fiscal year,” executives said. “And with Nintendo Switch now in its eighth year since launch, unit sales of both hardware and software decreased significantly year-on-year.”

This quarterly total brings lifetime Switch shipments to 143.42M, maintaining its spot as the third best-selling console ever, and bringing into question its ability to surpass Nintendo’s own DS (154.02M) and Sony’s PlayStation 2 (155M).

Beyond units shipped, management shared some insight into consumer sell-thru of the hybrid console. Over its life span starting in 2017, Switch has reached an impressive sell-thru milestone of 140M units.

It doesn’t take an enthusiast analyst to explain why a console in its eighth year, without a system seller, is on such a downward trajectory to start this financial year. Even if Nintendo achieves its shipment target, this will be the lightest full year of hardware sales during the Switch era.

Let’s look at the software categories, including new title performance for Nintendo during the last three months.

  • Switch game copies shipped in this period reached 30.64M, down 41% from 52.21M.
  • There are currently three million sellers, two of which are Nintendo’s.
  • This pushes lifetime Switch software units to nearly 1.27B.

The first million-seller to highlight was Paper Mario: The Thousand–Year Door debuting at 1.76M shipped during the quarter. As a remake, it’s tricky to make comparisons. The GameCube original sold 1.91M units in around three years. The other mainline series game on Switch, Paper Mario: The Origami King, started with 2.82M in 2020.

Luigi’s Mansion 2 HD was that second million-seller, moving 1.19M within just a few days in late June. The base game hit market in 2013 for Nintendo 3DS, selling 750K units in the United States alone within three months. The Switch title Luigi’s Mansion 3 released in October 2019 to 5.37M units its first quarter, albeit with a couple months on sale in that period.

Here’s an observation that shows how the Switch has saturated the market: Neither of those million sellers were called Mario Kart 8 Deluxe. This is the first quarter since back in July to September 2017 during which the console’s best-selling title didn’t hit a million copies sold. It did sell 930K all these years later, quite a strong Q1 compared to most games, and is now approaching 63M lifetime.

In terms of other lifetime milestones, The Legend of Zelda: Breath of the Wild trended above 32M, while Pokémon Scarlet & Violet became the third mainline franchise title to surpass 25M sold.

When it comes to units sold-thru to consumers (rather than shipments), Paper Mario: The Thousand-Year Door topped 1.3M units within six weeks of release, while Princess Peach: Showtime, which originally shipped 1.22M during the prior quarter, also moved past 1.3M by this metric.

Nintendo’s engagement statistics of Annual Playing Users hit a milestone at 128M, up from 121M a year back. The company didn’t share anything on Switch Online memberships, which were 38 million at last count in November 2023.

Nintendo suffered a double whammy as it entered fiscal 2025. This same quarter last year was massive on the strength of its biggest franchises and the Switch continues to show its age with a less compelling line-up than years past, featuring a portfolio titled towards refreshed older titles that aren’t as appealing as brand new entries. Combine that with a console that is present in many a household already, and there isn’t much upside on the financial side right now.

Speaking of that, management maintained its full-year outlook in these latest results. For now, at least.

  • Revenue expected down 19% to $8.7B.
  • Operating profit could decline 24% to $2.6B.
  • Annual Switch units off 14% to 13.5M.
  • Software units 17% lower to 165M.

These seem mostly reasonable to me, and I believe Nintendo can achieve all but one of them, even if barely.

It’s the hardware shipment figure where I remain skeptical. In order to hit a 13.5M annual target, Nintendo has to ship 11.4M more Switches over the next 9 months. Last year, when there was both a mainline Zelda and Mario among others to entice new buyers, it moved under 12M across the same nine month span! I’m maintaining a 12.5M to 13M forecast for the year, leaning towards the lower end.

Still, even assuming the lower end, that would put Switch around 154 million lifetime by March 2025. It’s going to be in contention at least for best-selling hardware of all time.

For a console in its home stretch, I’ll admit Nintendo is presenting an appealing line-up leading into the back half of its fiscal year. There’s The Legend of Zelda: Echoes of Wisdom in September, Super Mario Party Jamboree in October then Mario & Luigi: Brothership in November. Donkey Kong Country Returns HD is also slated for January 2025.

Plus, as we’ve entered the latter months of calendar 2024, might we hear about Super Switch? There’s a good chance, however I’m betting it happens right after the Switch’s final holiday season. Full reveal in January, launch April 2025 or later.

That ends the week, and another full recap on the earnings schedule. Hop over to social media for more coverage, and check back soon for more articles. Thanks for stopping by!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥155.93.

Sources: Company Investor Relations Websites, Nikkei Asia (Photo Credit).

-Dom

Activision Blizzard Offsets Hardware Weakness During Record Year for Microsoft Gaming in 2024 Q4 Report

DomsPlaying

According to the earnings calendar, it’s time for another recap!

This time I’ll be covering both Q4 and annual results for Microsoft, with a specific rundown on the Gaming business, which is currently experiencing growth via acquisition and facing much uncertainty around certain elements of its current strategy.

As expected after spending nearly $70 billion on Activision Blizzard, the inclusion of this new revenue pushed Microsoft Gaming to double-digit growth and record highs for a fourth quarter and 2024, marking the first time this business generated over $21 billion in annual sales.

Well, what’s behind these juicy headline numbers? And how does it compare to my estimate of where I expected them to be? Well, there’s plenty of questions around the Xbox business, and revenue came in below my personal expectations.

Looking beyond the deal impact, there’s a stagnancy setting in for Xbox over the last year, mainly as Game Pass shifts to user retention alongside a hardware business that under-performed and hit its peak this generation with Microsoft’s shift away from the traditional console approach.

“Stronger-than-expected performance in first-party content was partially offset by third-party content performance,” said Chief Financial Officer (CFO) Amy Hood when discussing the core content and services business during Q4. Which somewhat confuses me, as this must be referring to legacy Game Pass additions as opposed to new published titles.

Check below for the numbers themselves, my reactions to them, updated estimates for hardware shipments and some discussion around future forecasting.

Here’s the reported numbers from the filing and slides above, starting with the broader Xbox division.

During the quarter ending June:

  • Quarterly gaming revenue rose 44% to $5.02B.
  • In-line with company guidance of low to mid-40s.
  • That’s an all-time high fourth quarter.
  • ActiBlizz impact was $1.68B, or 48 points.
  • Which means “all other Xbox” declined 4% to $3.34B.

Now for fiscal year 2024 revenue stats.

  • Annual gaming revenue totaled $21.5B.
  • That’s up 39% from prior year’s $15.5B.
  • Ended slightly below my expectation.
  • See the above chart for full historical context.

Underlying the dynamics was a boost in Xbox Content & Services, over 60% growth with most of the growth due to the acquisition, offsetting a substantial drop for Xbox Hardware well into the double-digits.

This certainly reflects the strategy of subscription and expansion beyond a retail box, plus the integration of a business that now has exposure to PC and mobile. Whether or not this is the right direction is the question, especially given how competitors still put a sizeable focus on the console business as a way to reach audience and sell their titles for full price at launch.

So far, I’ve talked about sales. While Microsoft doesn’t report profit for Gaming, we can infer from the broader More Personal Computing (MPC) segment’s movements.

  • MPC group operating profit rose 5% to $4.92B.
  • That’s after a 43% increase in expenses with 41 points from ActiBlizz.

The indication being that, for the time being, integration is dragging the bottom line and the core Xbox businesses might not be making up for it.

Now I’ll delve deeper into the individual product categories underlying its latest performance.

Starting with Xbox Content & Services, here are Q4 figures.

  • Xbox C&S revenue jumped 61% to $4.66B.
  • This represents 93% of total gaming sales.
  • Best all time by a wide margin, over $1B.
  • And that’s due to ActiBlizz contributing 58 points.

Here’s the content segment for the full financial year.

  • Gained 52% up to $18.55B.
  • Its contribution to the total was 86%.
  • It’s larger than total gaming revenue in FY 2023.
  • Last year Xbox C&S was $12.18B.

Then there’s the struggling Xbox Hardware category, with June quarter results detailed below.

  • Declined 42$ to around $345M.
  • The lowest Q4 result since FY 2020.

Again, now the annual figures for Xbox Hardware.

  • Annual console sales declined 13% to $2.86B.
  • Similar to above, the worse since FY 2020.

I’ll move on to a portion where estimates come into play, since Microsoft stopped reporting hardware unit sales ages ago.

  • Last quarter, my guesstimate was 29.7M to 30.3M Xbox Series X|S lifetime.
  • I have quarterly shipments again under a million, say 750K to 800K in the June quarter.
  • If so, I believe it would be the lowest quarter this generation.
  • Which means I have current Xbox Series X|S lifetime around 31M.

As part of the company’s conference call, Chief Executive Officer (CEO) Satya Nadella provided a couple breadcrumbs around engagement.

  • 500M monthly active users (MAUs) across all platforms.
  • Hour played on Fallout titles rose 5x quarter-on-quarter after Amazon Prime’s Fallout.
  • And, that’s pretty much it.

It’s difficult to even decipher the meaning of monthly actives in this context, other than that mobile is massive and Microsoft purchased an entry point into that audience base.

Oh, and what’s missing? Game Pass subscriber numbers! Last we heard, it was 34 million as of February, conveniently after converting people away from Xbox Live Gold.

I always say one can learn as much from what a company doesn’t say as what it does. The distinct lack of transparency is another indicator of potential stagnation and uncertainty around elements of the business model, at least to me.

Here’s an angle I’d like to take before concluding. What might revenue look like if aggregating Microsoft Gaming and Activision Blizzard historically, then using that to calculate growth stats?

Granted, I had to make some assumptions. Mainly around the double-counting and the move from third-party to first-party. I still think it’s illustrative of the true history for the now combined entity, which tells more than seeing huge increases from the pre-acquistion days..

  • My forecast initially put FY 2024 combined revenue upwards of $22 billion.
  • As a reminder, the actual result was slightly below that: $21.5B.
  • The key is that last year’s number, when combined, was $22.2B, implying a 3% decline.

I can attribute this to a few things. Either the revenue was lower, there were more synergies that impacted the post deal ActiBlizz portion, or my estimates weren’t as accurate as they could have been. Perhaps all of the above. Essentially, this isn’t bible. It’s illustrative and shows a more realistic barometer of the company’s recent trajectory.

Switching gears towards the future, here’s a look at Microsoft’s guidance for FY 2025 Q1.

  • Gaming sales growth expected in the mid-30s.
  • That includes 40 points of ActiBlizz Impact.
  • Yes, so “everything else” will be down around 5%.
  • The company anticipates Xbox C&S to rise in the low to mid-50s.
  • Hardware will be “down.” (My estimate is in the mid-40s yet again.)

Here are these in dollar amounts, for the 3 months ending September.

  • Q1 gaming revenue of $5.29B. Another record.
  • For comparison, last year was $3.92B.
  • Xbox C&S output would be $4.86B.
  • Which means Hardware down to around $410M to $430M.

“The real goal here is to be able to take a broad set of content to more users in more places, and really build what looks more like to us, the software annuity and subscription business,” Hood said in response to a question. “With enhanced transactions and the ownership of IP, which is quite valuable long term.”

This is all well and good on an analyst call. As they say, proof is in the pudding.

Why close a valuable studio like Tango Gameworks, among other layoffs, if a quality pipeline is the key? What about the immediate portfolio, and where is the upside? It’s a light quarter upcoming for first-party, even with ActiBlizz. (I will note October to December will be more active in this regard.)

It’s more about older titles being added to Game Pass, including Call of Duty: MW3 this month, that could move the needle. Note the service’s structure changes took effect in July, and a price increase for existing users hits in September. Without that, I’m not sure these numbers could be achieved.

There is the busy release schedule for third party ramping up starting in August, such as perennial sports titles from Electronic Arts, which already has a certified hit with EA Sports College Football 25, plus there’s Ubisoft’s Star Wars Outlaws which I expect will be Massive.

That said, I think Microsoft meets the mid range of its outlook, with a little bit of upside for consoles as bigger third party blockbusters hit market.

It’s officially now a wrap on my first earnings recap of the season. Bookmark that calendar and stay tuned for more coverage soon! Be well, and stay safe everyone.

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Company Investor Relations Websites, Xbox Support.

-Dom

Helldivers 2 Launch Pushes PlayStation to Annual Sales High & Profit Growth in Fiscal Year 2023 Report

DomsPlaying

As earnings season marches on, I’ll wrap up this week with my final recap of the big three gaming manufacturers.

Sony, the largest of the group by sales, has reported its fiscal year 2023 results. In this piece, I’ll cover mostly the annual financials to give a broad perspective of where the PlayStation division has been recently and will be soon.

If any of the data is quarterly, I’ll point that out.

That said, here’s the big headlines from PlayStation’s portion:

  • Achieved record annual revenue above $29B.
  • Reported double-digit operating profit growth.
  • Biggest year of unit sales for a PlayStation device despite missing target.
  • Breakout success of Helldivers 2 across both console and PC.

Underlying the record top-line and profit performance was a boost in third party sales, including downloadable content, headlined by the likes of surprise hit Helldivers 2 from Arrowhead Game Studios and Insomniac Games with Spider-Man 2, the former highlighting the benefit of adopting PC and the sizeable upside of live service risk.

Additionally, yen depreciation had a tangible impact on annual growth, as I’ll illustrate shortly. This currency effect is amplified for Japanese companies operating globally.

Throughout this time frame, PlayStation 5 hardware closed the lifetime sales gap with its predecessor and passed another milestone on the global best-seller list. On the software side, unit sales increased while shifting towards a digital split.

“During the PlayStation 4 generation, we were able to significantly grow profits in this segment thanks to rapid digitalization and the expansion of network services,” management wrote.

“In the PlayStation 5 generation, which has capitalized on the established PlayStation 4 user base, the trend is hard to see due to the impact of stay-at-home demand and acquisition-related expenses, but, since the launch of the PlayStation 5, we have continued to achieve a high level of, and more stable, profit growth.”

Read on for more detail around Sony’s latest numbers and predictions for the next year!

The above slides show Sony’s Game & Network Services (G&NS) division results for the year overall.

  • Annual revenue increased 17% to $29.55B.
  • This included $1.9B of currency impact.
  • Operating profit rose 16% to $2.01B.
  • This includes $267M of currency impact.

I’d point your attention to the above gallery, namely the operating income chart I compiled which illustrates the Helldivers 2 effect, and more broadly shows what happens when Sony’s live service effort pays off. Quite literally.

Until the final quarter of its fiscal year, operating profit was trending down 25%. After January to March, the year ended up as a double-digit increase!

Moving on to products categories within G&NS, here are select annual revenue and growth stats:

  • Hardware was $8.39B, up 8%.
  • Add-On Content hit $7.5B, up 26%.
  • Digital Software at $5.89B, up 29%.
  • Network Services reached $3.78B, up 17%.

On the strength of newer launches and evergreen titles, Add-On Content surpassed Hardware in Q4 alone, though the latter became the leading segment for the full year as PlayStation 5 reached the middle of its life cycle (yes, already!).

Within the console side of the business, it was a banner year for shipments even if Sony’s forecast was too ambitious (as I wrote since they first posted it). Hardware results were:

  • PlayStation 5 shipped 4.5M units in the March quarter, down from 6.3M.
  • This led to a fiscal year shipment total of 20.9M, compared to 2022’s 19.1M.
  • Slightly below Sony’s 21M target, and well below its original guidance of 25M.
  • Still, it’s above PlayStation 4’s 20M in the same year, which was its best.

Check out the image below for a full comparison of the last two Sony console generations, showing that PlayStation 5’s current 59.3M lifetime was less than a million off PlayStation 4 at 60.2M, much closer than other points in their launch-aligned history.

As for the broader industry, PlayStation 5 officially surpassed the lifetime unit total of Microsoft’s Xbox One, which launched in 2013 and ended at 58M. The next milestone will be Nintendo Entertainment System at 61.91M, which I’d imagine it might have already reached as I write this.

Here’s further insight into how software did for the G&NS segment during fiscal 2023.

  • Unit sales reached 286.4M, up from 264.2M prior year.
  • Sony-made titles made up 39.7M of that, down from 43.5M.
  • Digital downloads comprised 70%, up from 67%.

The clear winners were a pair of sequels in October’s Spider-Man 2 and February’s Helldivers 2, the latter being PlayStation’s fastest-selling game ever amassing 2M units in 12 weeks. For context, 2022’s God of War Ragnarök sold 10M in 10 weeks.

Can’t forget about the likes of Blizzard’s Diablo IV and Capcom’s Street Fighter 6, plus the continued benefit of annualized sports and shooter titles, even on an off year with the lackluster Call of Duty: Modern Warfare 3.

Then, to a lesser extent, there was contribution from Square Enix’s Final Fantasy titles. In recent investor materials, Square Enix pointed out Final Fantasy 16 and Final Fantasy 7 Rebirth, both PlayStation exclusives, missed expectations (what else is new). With Square’s move to multi-platform, the days of third-party exclusives are clearly dwindling.

We also heard a bit from Sony on engagement, driven a lot by evergreen titles that dictate the market leader’s success here. As I mention in recent Circana U.S. sales recaps, tons of people play console primarily for experiences including Fortnite, Roblox, Minecraft and Grand Theft Auto V.

Sony reported that Monthly Active Users (MAUs) across PlayStation Network ended the year at 118M. While that’s no longer an all time high, which was achieved the prior quarter with 123M, it was still up 10M year-on-year.

The final stretch of fiscal 2023 was a fantastic one for Sony, pushing it to all-time revenue and generating higher income when it seemed like the year might be a down one for profitability.

A surprise multi-platform hit and PC’s contribution bumped up that profit growth, along with an all-time year for hardware shipments plus ongoing engagement in various legacy games.

Sony has recently backed off its live service push, to focus more on fewer titles in the space. A game like Helldivers 2 proves that all it takes is a single game capturing the zeitgeist to drive financial growth and keep an audience coming back for more.

It doesn’t hurt to have a simultaneous PC launch, a platform with a notoriously passionate user base. (Better or worse.)

I’ll quickly look ahead to Sony’s expectations for the coming year. Here’s the PlayStation forecast:

  • Revenue will be down 2% to $29.1B.
  • Operating profit to increase 7% to $2.15B.
  • PlayStation 5 shipments of 19M, down almost 2 million.

“As we enter the second half of the console cycle, we expect the number of new PlayStation 5 units sold to gradually decline,” management wrote in its remarks.

“However, by steadily maintaining and expanding the consistently increasing number of active users and user engagement, while also strengthening control over business costs, we believe that we will be able to steadily increase sales and profits from the PS platform going forward.”

Overall, I’m guessing G&NS will achieve these goals, and perhaps even increase the console shipment guidance to 20M. I’m expecting a lot of consumers upgrading and new buyers for Grand Theft Auto VI, expected to launch in calendar 2025.

Executives also reiterated that its new sci-fi multiplayer IP Concord will be out in this same time frame, as it aggressively moves to improve margins and incorporate the PC market. Could there be others launching by the fiscal year end?

Speaking of executives, Sony announced the replacement for exiting PlayStation boss Jim Ryan. Or should I say replacements, and both are internal hires. Hermen Hulst (my prediction back when the Ryan news broke) and Hideaki Nishino be co-leaders, heading up new respective groups within Sony Interactive Entertainment.

With that done, this concludes my latest recap. I recommend checking out socials for more coverage of earnings season and everything across the games industry landscape. Thanks for reading, be well!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥144.4.

Sources: Circana, Company Investor Relations Websites, Sony Interactive Entertainment.

-Dom

Nintendo Posts Positive 2024 Annual Results & Sets Switch Successor Reveal for Current Fiscal Year

DomsPlaying

Keeping with my new tradition, I’m here with a quick-hitting recap of Nintendo’s latest annual results.

I’ll then look ahead to its current fiscal year, the 12 months ending March 2025, during which the company will officially reveal its next hardware.

Don’t worry. I’ll have my usual charts and reactions, just in an easier format!

Here’s the highlights for Nintendo’s 2024 financial report:

  • Both revenue and profit bounced back to growth in the single digits.
  • Annual Switch shipments were 15.7M, above its latest guidance.
  • During the latest quarter, Switch passed 140M sold lifetime.
  • Over half of software sales were digital for the first time ever.

While unit sales for consoles and software declined last year, Nintendo saw financial growth due to a depreciating yen, a shift to the premium Switch OLED model, shifting spending towards digital content and a sizeable impact from April’s The Super Mario Bros. Movie.

“For hardware, by continuing to convey the appeal of Nintendo Switch, we try to not only put one system in every home, but several in every home, or even one for every person,” management wrote. “Another objective is to continually release new offerings so more consumers keep playing Nintendo Switch even longer and we can maximize hardware sales.”

Scroll ahead for the full rundown and predictions for an exciting, and crucial, time in the company’s history.

Top level, these are the main stats for Nintendo’s annual results during the year ending March 2024.

Fair warning: Get ready for numbers!

  • Revenue up 4% to ¥1.67T ($11.57B).
  • Currency impact on revenue of ¥94.4B ($653M).
  • Operating profit rose 5% to ¥528B ($3.66B).
  • Currency impact on operating profit of ¥35B ($242M).

These were enough to log the third best year in the Switch era by both metrics. While impressive given its latest console’s age, having major releases in the Zelda and Mario franchises alongside a blockbuster animated flick were enough to make up for slowing unit sales.

As for product category breakouts:

  • Software represented 56% of total sales, up from 54%.
  • 81% of software sales were first party, up from 79%.
  • The proportion of digital software sales was 50%, up from 48%.

Regional splits were as follows:

  • The Americas at 44%, same as last year.
  • Europe was 24%, down slightly from 25%.
  • Japan reached 22%, compared to 23%.

Underlying a larger-than-usual portion of Nintendo’s growth was its mobile, IP and licensing segment. On the strength of the billion-earning The Super Mario Bros. Movie, sales here rose 82% to ¥11.2B ($77M), plus had the knock-on effect of boosting the popularity of Mario-themed titles in subsequent quarters.

I’ll now reflect on the Hardware portion of the report.

  • Switch shipments from January to March were 1.96M, down from 3.06M.
  • That brought the year to 15.7M, or 13% lower than fiscal 2023.
  • This figure was above management’s revised guidance of 15.5M.
  • OLED model was the only one showing growth, up 1% to 9.32M.

While hardware ended up meeting the latest target that executives set, it came in slightly below my personal forecast of 16M. Management called this “stable” for a console of its age.

Lifetime Switch shipments are now 141.32M, thus retaining its spot as the third best-selling gaming console ever.

Prior to this, figures were based on shipments to retail. Nintendo did provide a slide on sell-thru to consumers, charting it out over the Switch’s full life cycle.

Overall, it was the second lowest year for sell-thru other than 2017’s launch. The premium OLED model experienced its highest sell-thru to date, while the base model continued its steady decline, both as expected.

Moving on to Software results for the full year:

  • Game unit shipments declined 7% to 199.67M.
  • Even so, that was above the latest target of 190M.
  • There were 31 million-sellers. Nintendo produced 20 of them.
  • Lifetime Switch software unit sales approached 1.24 billion.

In terms of debuts, February’s Mario vs Donkey Kong remake collected 1.12M units. Additionally, Princess Peach: Showtime! moved over a million in a week, reaching 1.22M by the end of March.

Then there’s the ever-growing list of older and evergreen titles in the portfolio.

  • The Legend of Zelda: Tears of the Kingdom saw 20.61M in less than a year.
  • Super Mario Bros. Wonder jumped to 13.44M after two quarters.
  • July 2023’s Pikmin 4 finished the year at 3.48M.
  • Mario Kart 8 Deluxe raced towards 62M lifetime.

Shifting over to software sales as measured by sell-thru to consumers:

  • The Legend of Zelda: Tears of the Kingdom at 19.5M.
  • Super Mario Bros. Wonder was 12.4M.
  • Pikmin 4 eclipsed 3.3M, meaning most of its copies have been purchased.
  • November’s Super Mario RPG remake hit 2.6M (out of 3.31M shipped).

“The Legend of Zelda: Tears of the Kingdom, Super Mario Bros. Wonder, and Pikmin 4 all saw sell-through grow at a faster pace than any past titles released on Nintendo Switch in their respective series,” management wrote.

Executives also shared an update to Nintendo’s unique engagement statistic called Annual Playing Users. As of March, it reached an all-time record of 123M, up a million over the prior quarter and 7 million compared to the prior year.

The company might share an update for Switch Online memberships during a corporate briefing in the next few days. The service’s paid membership count was 38M as of September 2023.

It’s another mostly positive annual announcement for Nintendo, showcasing top-line momentum and profitability even as hardware and software units declined. It’s well-known that the market for Switch is saturated, which meant executives had to look for other avenues like film to keep growing, while also supporting the vast audience base with flagship franchises and external partnerships.

What’s to come for the company entering a pivotal time as it plans to bridge the gap between console generations?

Well, I’ll now run through the headlines for Nintendo’s fiscal 2025 targets:

  • Revenue could be down 19% to ¥1.35T ($9.34B).
  • Operating profit expected to decline 24% to ¥400B ($2.77B).
  • Switch anticipated to ship 13.5M units, down 14%.
  • Guidance of 17% lower Switch software units, or 165M.

“Switch has entered its eighth year since launch,” management mentioned. “While it will be challenging to sustain the same sales momentum as before, we will work to maintain high user engagement with the hardware and invigorate the platform so that more consumers continue to play Switch for longer.”

If that last bullet point is achieved:

  • Switch will compete for best-selling console ever at roughly 154.82M sold.
  • Nintendo DS is in second at 154.02M to date.
  • Sony’s PlayStation 2 is currently tops at 155M.

I see the financial forecasts as fine and achievable. On the other hand, Nintendo’s hardware plan is ambitious. Especially given the lighter release slate, chock full of remakes and reissues, and people waiting anxiously for that new announcement. I’m more around 12.5M to 13M, at most.

Speaking of Super Switch, the reveal is officially imminent!

Nintendo President Shuntaro Furukawa took to Twitter to announce that the announcement of Switch’s successor will happen this fiscal year. Though not at a June Direct, which will focus more on the slate of games for the back half of this calendar year.

Based on the guidance and an aggressive target for existing hardware, I expect a full-blown Super Switch reveal to happen around January 2025 with a subsequent launch sometime in or after April 2025.

That about does it for my latest reaction piece. What did you think? Predictions for Super Switch?

Hit me up here or on social media to chat and stay tuned for more coverage of earnings season soon. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise noted.

Exchange rate is based on reported average conversion: US $1 to ¥144.52.

Sources: Company Investor Relations Websites, Nintendo Twitter.

-Dom

Mobile Strength & New Premium Titles Carry March 2024 Circana U.S. Games Industry Report

DomsPlaying

United States Games Industry Sales (March 3rd to April 6th, 2024)

It’s time to cover another U.S. games industry spending report from Circana, this one for the month of March and the end of 2024’s first quarter.

Here’s the quick hits for March consumer spending on video games here in the States:

  • Overall spending increased 4% to $4.89 billion.
  • Content grew 9% to $4.25 billion.
  • Hardware declined 32% to $391 million.
  • Accessories moved up 9% to $242 million.

Content, which made up 87% of total spending in March, contributed solid sales momentum for the domestic market, boosted by double-digit mobile growth and a slew of new launches. At the same time, Hardware continued to drag without a huge catalyst or fancy new product offering in sight.

“Mobile’s strong performance was supplemented by a 3% increase in Console Content spend, along with a 2% gain in the PC, Cloud and Non-Console VR Content segment,” said Circana’s Mat Piscatella on Twitter. “Mobile accounted for 89% of the total year-on-year growth in video game content spending during the month.”

Highlighting the announcement was Dragon’s Dogma 2 as the month’s best-selling premium title, highest of the six new releases among the Top 10. Monopoly Go stacked up yet again as mobile’s top grossing game, while Fortnite and Helldivers 2 led platform engagement charts. PlayStation 5 came out on top for console sales by both dollars and units, as it has most months recently.

Scroll down for more on product categories, best sellers, most played games, first quarter results and my predictions for future reports.

In terms of Content, mobile retained its driving force status, growing 15% in March.

On the premium side, Dragon’s Dogma 2 from Capcom debuted at numero uno on the overall chart. It’s already the year’s 3rd best-selling title, and took less than a month to eclipse lifetime sales of 2012’s Dragon’s Dogma and its Dark Arisen expansion combined.

February’s winner Helldivers 2 came in second, solidifying its spot as the top seller for Q1. The latest from Arrowhead Game Studios already ranks 7th ever for Sony-published titles, an extraordinary feat mostly due to its PC success, and it’s been among the most-played games on both PlayStation and PC since its launch.

Perennial sales beast MLB The Show 24 scored a third place start, right around where it usually begins during its launch month, inserting itself as the 5th best-selling title of 2024 to date.

Rise of the Ronin from Koei Tecmo started at #5 in March, and #14 for the Q1 chart. Globally, the publisher claims it’s tracking above Nioh. This tracks here, since that game charted at #9 in the U.S. during its February 2017 launch.

Nintendo’s latest Princess Peach: Showtime! slotted in 6th, excluding digital, while Sega’s Unicorn Overlord had a fantastic start in 8th. Rounding out the new titles among the top ranks was Take-Two’s WWE 2K 24 in 9th, again without its digital portion included.

As measured by monthly active users, Fortnite was the most played on both PlayStation 5 and Xbox Series X|S, followed by Call of Duty and Grand Theft Auto V. On the PC side, it was Helldivers 2, Counter-Strike 2 and Baldur’s Gate 3. Also, huge shout out to poker roguelite Balatro in 4th on PC!

Check below for March’s best-seller ranks for premium and mobile.

Top-Selling Premium Games of March 2024, U.S. (Physical & Digital Dollar Sales):

  1. Dragon’s Dogma 2
  2. Helldivers 2
  3. MLB The Show 24^
  4. Call of Duty: Modern Warfare 3
  5. Rise of the Ronin
  6. Princess Peach: Showtime!*
  7. Final Fantasy VII: Rebirth
  8. Unicorn Overlord
  9. WWE 2K24*
  10. Hogwarts Legacy
  11. Madden NFL 24
  12. EA Sports FC 24
  13. Minecraft
  14. Horizon Forbidden West
  15. Tekken 8
  16. Rainbow Six Siege
  17. Elden Ring
  18. Mario Kart 8*
  19. Marvel’s Spider-Man 2
  20. Mortal Kombat 1

Top-Selling Mobile Games of March 2024, U.S.:

  1. MONOPOLY GO!
  2. Royal Match
  3. Roblox
  4. Candy Crush Saga
  5. Coin Master
  6. Whiteout Survival
  7. Last War Survival
  8. Pokémon Go
  9. Township
  10. Clash of Clans

Here’s the scoop on Hardware’s tough time last month:

  • All three major console families saw spending decline over 30%.
  • PlayStation 5 was the leader by both units and dollars.
  • The digital edition of PlayStation 5 contributed 39% of unit sales.
  • Nintendo Switch was #2 measured by units.
  • Xbox Series X|S secured runner-up by dollars.

Flipping over to Accessories as a segment:

  • Spending moved up almost double-digits.
  • The headset and headphone sub-segment rose 8%.
  • PlayStation 5’s Dual Sense Edge was March’s best seller.
  • Sony’s high-end controller was also Q1’s winner.

Expanding to results for the January to March 2024 time frame:

  • Overall spending grew 6% to $14.67 billion.
  • Content increased 9% to $12.84 billion.
  • Hardware dropped 24% to $1.12 billion
  • Accessories jumped up 25% to $707 million.

Within premium gaming, Helldivers 2 was the quarter’s top earner. That was followed by Call of Duty and newcomer Dragon’s Dogma 2. Other standouts include Final Fantasy VII: Rebirth in 4th, Persona 3 Reload in 9th, last year’s winner Hogwarts Legacy at #10.

Similar to March, PlayStation 5 was the leading console in Q1 by units and revenue while Nintendo Switch came in the second spot by units, and Xbox Series X|S slotted at #2 by dollars.

“Total U.S. Video Game spending being up 6% in Q1 2024 despite a 24% drop in hardware spending.. shows how diversification has made the market more resilient,” said Piscatella.

Here’s the list of best-selling premium titles for 2024 to date.

Top-Selling Premium Games of Q1 2024, U.S. (Physical & Digital Dollar Sales):

  1. Helldivers 2
  2. Call of Duty: Modern Warfare 3
  3. Dragon’s Dogma 2
  4. Final Fantasy VII: Rebirth
  5. MLB The Show 24^
  6. Tekken 8
  7. Suicide Squad Kill the Justice League
  8. Madden NFL 24
  9. Persona 3 Reload
  10. Hogwarts Legacy
  11. EA Sports FC 24
  12. Skull & Bones
  13. Marvel’s Spider-Man 2
  14. Rise of the Ronin
  15. Super Mario Bros. Wonder*
  16. Elden Ring
  17. Minecraft
  18. Like a Dragon: Infinite Wealth
  19. The Last of Us Part 2
  20. Mortal Kombat 1

In summary, March and 2024’s first quarter had comparable dynamics when it comes to category results, where both Content and Accessories went up, notably bolstered by mobile and surprise launches in previously-unheralded franchises like Helldivers and Dragon’s Dogma, while Hardware faces a number of headwinds and can’t find a catalyst to growth right now.

Looking ahead, I’ll now run through my thoughts on April and a quick mention of my annual forecast.

  • I’m thinking we’ll see total April sales rise in the single-digits.
  • Content will go up, more impacted by older titles rather than new launches.
  • I expect Hardware to decline in the low to mid double-digits.

I certainly expect there to be fewer new titles in April ranking high on the premium list, compared to more than half of the Top 10 this past March, because there weren’t many triple-A flagships.

The controversial Stellar Blade has a solid chance at competing for a Top 5 debut, even being a PlayStation 5 exclusive. Otherwise, we’ll likely see movement for Microsoft-owned brands. This includes Sea of Thieves hitting a new audience and Bethesda games creeping back into the Top 20 or higher due to the uber-popularity of Amazon’s Fallout series, which already attracted 65 million viewers according to Variety.

In terms of an annual forecast for all of 2024, Piscatella is maintaining his guess for a 2% drop in spending. Personally, I’ll maintain my latest forecast of “virtually flat to slightly down” based on signs pointing to the more enthusiast PlayStation 5 Pro hitting market instead of a Super Nintendo Switch, the latter of which would drive Hardware to much better performance and have a system-selling title alongside it.

That’s it for March and the first quarter. Time flies. I recommend reading Piscatella’s thread here on social media. I’ll be back next week with more earnings season coverage. Thanks for reading!

Note: Comparisons are year-over-year unless otherwise noted.

*Digital Sales Not Included

^Xbox & Nintendo Digital Sales Not Included.

Sources: Circana, Koei Tecmo, Variety.

-Dom

Microsoft’s Quarterly Xbox Sales Increase Only Due to Activision Blizzard in Fiscal 2024 Q3 Report

DomsPlaying

The start of a new earnings season, complete with my usual calendar, means it’s time to start up recaps as well.

I’m going to try something new and tighten up these recap articles!

More concise, same great quality. I hope.

Today, that means covering Microsoft’s recent 2024 Q3 results. I’ll focus mostly on Xbox during this January to March time frame, where there was major sales growth solely due to the impact from Activision Blizzard, as other areas within gaming declined including things like content, subscription and hardware offerings.

Still, Xbox segment sales outpaced guidance, mainly due to out-performance of Call of Duty.

Microsoft’s gaming division also hit a major milestone this quarter. Feeling the boost from the acquisition being included for two quarters now, annualized Xbox sales reached $20 billion for the first time ever.

I mean, this is why Microsoft spent all that dough. Plus, executives expect this to continue in the immediate future, according to guidance I’ll highlight later in this article, as that annual sales number is likely to move above $21 billion to close the fiscal year.

Now I’ll move right into a rundown of the numbers and a look ahead into the future of a somewhat shaky time for Xbox’s output.

Here’s a quick summary of Microsoft’s quarterly gaming sales, as shown in the slides above.

  • Q3 revenue rose 51% to upwards of $5.45 billion.
  • This was above management’s, and my, expectations.
  • It’s an all-time Q3 record, and Xbox’s second best quarter ever.
  • Out of that percentage gain, 55% was due to ActiBlizz impact.
  • Implies all other areas like Xbox, Bethesda etc saw a decline of 4%.

These quarterly sales move gaming back to fourth place in terms of Microsoft’s major product categories, trailing Windows at $5.93 billion.

Expanding now to current annualized Xbox revenue to get a broader sense of the business:

  • Overall annual gaming revenue is $19.97 billion.
  • Compare that to $18.13 billion as of last quarter.
  • The chart in the above gallery shows these in context.

I’ve long written about how this was the strategy around Microsoft’s merger and acquisition activity, to push past the $20 billion per year mark and approach its largest peers, like Sony and even Tencent, especially by leveraging ongoing services and breaking more into mobile.

Which is why I don’t think Microsoft is done buying, even after spending so much on the world’s largest formerly third party publisher.

Similar to my earlier coverage of Xbox, I’ll mention that Microsoft gives limited visibility into the profitability, or lack thereof, of its gaming business. Two points on that:

  • The More Personal Computing (MPC) segment saw operating profit rise 16% to $4.92 billion.
  • The ActiBlizz deal boosted expenses, as its net impact in Q3 was an operating loss of $350 million.

This implies that Xbox, despite seeing a big top-line boost, was likely less profitable this quarter.

Here’s where I’ll highlight the underlying dynamics, by way of discussing product categories.

First up is the larger of the two, Xbox Content & Services (Xbox C&S):

  • Q3 Xbox C&S revenue increased 62% to $5.03 billion.
  • Same as games revenue, this is also a Q3 record and second best ever.
  • ActiBlizz growth contribution was 61%, thus a 1% gain for everything else.

Then, on an annual basis:

  • Current annual Xbox C&S revenue is $16.86 billion, or 84% of the total.
  • That’s up from $14.86 billion last quarter, when it was 82% of the total.

On the flip side, Xbox Hardware had another tough time, without much to drive its fundamentals right now, as lower unit sales weren’t enough to offset gains from higher pricing:

  • Q3 Xbox Hardware revenue declined 31% to $350 million.
  • The lowest 3rd quarter dollar sales of the Xbox Series X|S generation.

Looking at the last 12 months:

  • At present, Xbox Hardware annual sales are $3.11 billion.
  • That’s down from $3.27 billion sequentially, and $3.37 billion last year.

Since Microsoft doesn’t tell us anything about lifetime Xbox Series X|S unit sales, I’ll keep up with my guesstimates.

  • I had the family at 29 million to 29.5 million last quarter.
  • It’s now likely hovering right around the 30 million milestone.
  • I forecast it moved 700K to 800K in the three months ending March.
  • Which lands it around 29.7 million to 30.3 million to date.

When it comes to supplemental stats like engagement, player counts etc, Xbox management didn’t have much to say.

Chief Executive Officer (CEO) Satya Nadella did note the following on the firm’s conference call:

  • Q3 records for “game streaming hours, console usage and monthly active devices.”
  • The first ActiBlizz title on Game Pass Diablo IV was one of the service’s biggest launches.
  • Players clocked over 10 million hours during its first 10 days.
  • This month, Xbox had 7 games among the Top 25 on the PlayStation store.

Which is a distinct lack of specifics, especially as it relates to Game Pass subscribers or total monthly active users, which unfortunately is a common theme here from management.

Before closing out, I’ll mention Microsoft’s overall results.

  • Company revenue jumped 17% to $61.9 billion.
  • Operating profit moved up 23% to $27.6 billion.
  • Microsoft Cloud sales increased 23% to $35.1 billion.

Slipping into the future, management provided guidance for the final quarter of fiscal year 2024.

Here are the expectations shared by Chief Financial Officer (CFO) Amy Hood for Q4 gaming performance.

  • Total gaming revenue growth in the low to mid-40s.
  • 50 points of that via ActiBlizz impact.
  • Xbox C&S expected to grow in the high 50s.
  • 60 points there from ActiBlizz, thus implying everything else will be down 10%.
  • Xbox Hardware will “decline again.” Based on my math, it will be down 24%.

Using these to make certain assumptions, that translates to the following in dollar terms:

  • Total gaming revenue around $5 billion.
  • Xbox C&S revenue upwards of $4.55 billion.
  • Xbox Hardware hitting $450 million.

These feel right to me, with upside for content based on Senua’s Saga: Hellblade II launching in May, certain games like Sea of Thieves accessing additional audiences and a good effect from Amazon’s Fallout show (which is awesome).

Really, it’s going to go as ActiBlizz games go, notably as they are added to Game Pass.

If Xbox hits these targets, it would shatter a record for fiscal year sales, approaching $21.5 billion. For comparison, this number was at $15.5 billion at the end of fiscal 2023!

I hope you enjoyed the new format experiment, where I’m balancing analysis with word count to make it easier to follow and fun to read.

I’ll be back soon with more articles, and feel free to reach out on social media in the interim. Thanks for reading. Until next time, be well!

Note: Comparisons are year-over-year unless otherwise noted.

Sources: Company Investor Relations Websites, Xbox Wire.

-Dom

Seven Major Games Industry Predictions for 2024

DomsPlaying

Now that I’ve looked back with my 2023 Year-in-Review, which I still highly recommend reading to catch up on trends, games and studios you might have missed, it’s officially time to move into the new year!

After a legendary twelve months of game releases amidst a disastrous time for the industry’s labor market, I believe uncertainty and volatility are set to define 2024. There will be challenges, and plenty of them, yet also select opportunities on which to capitalize. I see a future with new hardware, labor issues and new service launches from key players, among other things.

Rather than make general statements, which are far too easy, I try to make my predictions quantifiable somehow, or at least be as specific as I can, to hold myself accountable. Plenty of people make predictions; not many grade themselves. For instance, here’s my results from last year:

  • Microsoft & Activision Blizzard Deal Closes in Calendar 4th Quarter: Correct.
  • Nintendo Goes Another Year Without Announcing a Switch Successor: Correct.
  • Global Games Industry Value Returns to Growth & Passes $188 Billion: Partially Correct.
    • It grew, albeit not as much as I expected.
  • PlayStation 5 Wins Best-Selling Console in the U.S. Yet Misses Sales Targets: Correct.
    • Well, so far. I would also argue Sony is tracking below its PlayStation 5 fiscal target.
  • Xbox Game Pass Price & Subscription Base Increases: Partially Correct.
    • Cost to consumer went up, though Microsoft refused to share user base stats.
  • Special Year of Fighting Game Releases & Announcements: Correct.
  • Amazon Games Makes Massive Studio Acquisition: Incorrect.
  • Bonus: Bungie Announces & Launches Destiny Universe Transmedia Property: Incorrect.

Not bad, right! Now, check a look below for seven predictions for 2024 covering the games industry at large. Plus, as usual, a super bold bonus guess mostly for fun.

Happy New Year everyone.

Super Nintendo Switch & New 3D Mario Release in Fourth Quarter

I’ll get an obvious one out of the way. In fact, I’ll make it a bit harder by attempting to guess exact things for what’s inevitably going to be the year of Nintendo’s next hardware launch. The company’s next hardware will be called Super Nintendo Switch. It will again have a hybrid portable and console setup, will launch with one model in October, and cost $400 to start.

Alongside, Nintendo will product a mainline 3D Mario as a launch title. It won’t be a sequel to 2017’s Super Mario Odyssey. It will be an open world with various areas and secret levels. It will be called Super Mario [Something] 3D. In addition to this, I’m guessing a motion game launches day-and-date plus a mainline Animal Crossing and Mario Kart will both be out within its first year. The device will, after a somewhat slower start as adopters move on, end up following a similar trajectory as its predecessor within three years. That’s right, I’m officially done underestimating Nintendo.

Difficult Labor Market Continues as Major Publishers Reduce Workforce

This is absolutely the most painful prediction to write, mainly because it’s a carry-over from last year that I don’t think will stop any time soon. During January to December 2023, Games Industry Layoffs estimated that upwards of 9,000 jobs were cut across the sector. I believe that anyone hoping for a more cheerful 2024 for hiring or even stability will, unfortunately, be disappointed.

After years of low interest rate borrowing, higher-than-usual consumer demand and expansion by many firms, I’m expecting even more layoffs and even studio closures in 2024, especially at the top-end, AAA level. Within the first week of January alone, Surgeon Simulator maker Bossa Studios laid off a third of its employees and further losses were reported at Embracer Group’s 3D Realms and Slipgate Ironworks. I believe we’ll see a further contraction of more than 3,000 to 5,000 jobs, with at least two major publishers announcing 5% to 10% workforce reductions.

Microsoft Xbox Mobile Store & Big Name Activision IP Announcements

Here’s a two-for-one. A natural progression of Microsoft’s service-oriented strategy will be developing a dedicated Xbox mobile distribution platform that integrates Game Pass and cloud offerings. I anticipate it will both reveal and release this sort of storefront in 2024, let’s say between June and December. It will simply be called Xbox Mobile. This move is advantageous from various perspectives, in particular for maximizing platform fees, diversifying its offerings, controlling content flow, appealing to potential partners and expanding its audience base across devices. Can it truly compete with Apple and Google’s market share? Well, you won’t see me betting on that.

That brings me to the second part of the prediction: Now that the Activision Blizzard deal is done, I believe the team will revive certain brands, especially those that can round out the Game Pass portfolio and even crossover to mobile. Within the next 12 months, I’m thinking the team will announce the following: new Skylanders and Tony Hawk’s Pro Skater iterations, both being ongoing platforms and revenue generators. Once the mobile store and larger brand IP are established, Xbox will move into Spyro the Dragon and Phil Spencer’s beloved Hexen, which I don’t expect to be revealed until at least 2025. I’m much more skeptical on others, for instance a Guitar Hero revival.

Sony Launches PlayStation 5 Pro & Spider-Man 2 Expandalone in November

Not to be outdone by Nintendo, I’m thinking fellow Japanese hardware maker Sony kicks off its mid-generation console refresh this year. While it feels like just yesterday the platform holder launched the PlayStation 5, partly because of a global pandemic making the passage of time irrelevant, it’s now over three years into the latest cycle. Thus, I’m expecting a boosted PlayStation 5 Pro announcement sometime in the third quarter and a quick turnaround to release in the beginning of November 2024.

Along these lines, I’m going to say star studio Insomniac Games is cooking up what I call an “expandalone” for its 2023 hit Marvel’s Spider-Man 2, similar to the Miles Morales counterpart to 2018’s Marvel’s Spider-Man. (Mild spoiler warning!) This will be a solid 8 to 10 hour experience, it will hit market on the same exact day as the new console model, boast a range of performance options to show off the fancy tech and feature the webbed buddies facing off against Carnage as the primary villain.

Total Global Games Industry Value Will Remain Virtually Flat

In the last quarter of 2023, NewZoo estimated the global games industry did exhibit growth during the year even with a slew of challenges, moving up under a percent to $184 billion in value. The largest contributor of Mobile accounted for over $90 billion, down 2% as this segment stagnated during the year. It was Console and PC software, including full game digital downloads, driving upward momentum with those segments moving up 5% and 2%, respectively.

This year, I’m leaning towards caution for 2024 and think the global industry will remain virtually flat, with slight downside in potential negative territory. This would be notable as only the second decline of the last 16 years, alongside 2021 to 2022. I am guessing $183 billion to $184 billion for the full year. Partly because of a tough comparison against a stacked release calendar, between the out-performance of Hogwarts Legacy and The Legend of Zelda: Tears of the Kingdom among others. I expect minimal mobile momentum to remain, as well as subscription stagnation and a heavy reliance on a new Nintendo console that could have a slower adoption rate. There is some decent upside if my PlayStation 5 Pro prediction hits, because I do expect a good holiday season for Sony regardless.

AI Usage Ramps as At Least Two Big Titles Embrace Generative Voice & Writing

It’s time for the dreaded buzzword bro: Artificial Intelligence! As much as people don’t like AI, or misuse the term, it’s part of our collective future and is already an integral part of making games. It has been for a while within an industry that blends art and technology, as various notably projects have already used some form of it to assist human developers. Recent examples include Ubisoft writers leveraging it for non-playable character chatter, Squanch Games having AI artwork in High on Life and The Finals from Embark Studios features generative text-to-speech.

I expect this sort of AI-assist development tech to take an even more prominent role in 2024. How will I quantify this prediction? I believe that at least two major publisher titles will heavily feature something like AI-enhanced primary characters or substantially aiding the writing team with main or side quest lines. Candidates include Ubisoft, Square Enix and even PlayStation Studios, the last of which has done great work with accessibility features, a fantastic opportunity area for this exact sort of development workflow enhancement.

M&A Cautiously Continues With Acquisitions by Saudi Arabia’s Savvy Games & Netflix

Last year’s merger and acquisition (M&A) valuation was skewed by Microsoft’s monumental $69 billion takeover of Activision Blizzard. Before that closed in October, companies weren’t as active in terms of deal value through the first nine months of 2023 according to a global report from Drake Star. There were 746 deals valued at $18 billion, down from 626 deals at $51 billion during the same time in 2022. Similar to my sentiment right now, there’s a lot of uncertainty around things like rates and jobs, which is why I believe that 2024’s deal landscape will be selective rather than massive.

Even so, there will always be moves made by key players. I expect a couple of those to be Savvy Games and Netflix. The former is the gaming investment vehicle of Saudi Arabia’s government, which is throwing cash at various sectors including tech, while the latter is hellbent on pushing games to its millions of subscribers. Might a name like CD Projekt be appealing to these kinds of buyers after a stock price decline? (I’d say so.) Might a platform holder named Sony be interested in spending big bucks on a Ubisoft or Capcom? (Eh, I don’t think so.) Finally, which business will Embracer spin off to pay down its debt and which company might subsequently buy them? (I’d wager Gearbox Entertainment or Coffee Stain, or both.)

Bonus & Bold: Bungie Concludes The Final Shape With Destiny 3 Announcement

That’s right, it’s time to finish with a pipe dream! Yes, it’s a mostly absurd one. It’s something I want more than expect to happen. I acknowledge Bungie got rid of a reported 100 folks, or 8% of staff at the time, back in October. It’s making a huge push towards The Final Shape expansion, the huge finale of Destiny’s decade-long saga. A good portion of the team is actively focusing on extraction shooter and likely 2025 launch Marathon.

I’d still wager the talented folks at Bungie are drafting up something more substantial for the future of Destiny that isn’t just the announced periodic episodes once the latest expansion concludes in June. Plus, it’s a bloated game with a reportedly dated development process that drastically needs a reset. Which is why I think the third mainline Destiny franchise title will (realistically probably not) be announced this year, and (is super unlikely to) launch subsequently in 2026!

Note: Comparisons are year-over-year and dollars are in US$ unless otherwise noted.

Sources: Bloomberg, Company Investor & Media Websites, Drake Star, Drexel News Blog (Image Credit), Games Industry Biz, NewZoo, Video Games Chronicle, VideoGameLayoffs.com.

-Dom

Spider-Man & Mario Highlight a Down Month for U.S. Games Industry Sales in October 2023 Circana Report

DomsPlaying

Here I am with another domestic sales recap, beginning the final quarter of results for 2023!

October’s numbers are in from industry tracking firm Circana, who revealed the winners of last month’s big battle for supremacy during the year’s busiest time for new game releases.

Despite all the premium software launches, total spending across the U.S. declined 5% in October to just over $4 billion. All of the three major segments of Content, Hardware and Accessories saw lower sales, with Hardware suffering the worst loss over 20%.

That said, 2023’s annual spend remains trending upwards as each category is pointing towards growth rates in the single digits.

The main reason behind October having lower spending, which I apologize for not pointing out last month, was Call of Duty launched last October while this year’s title didn’t hit until November. This led to a strong October 2022, and a difficult comparison against which last month had to contend.

“Growth in physical console software and mobile spending was offset by declines in other areas,” said Circana’s Mat Piscatella. “Particularly digital premium downloads driven by the release date shift of Call of Duty.”

There were still plenty of success stories. October had nine new titles among the Top 20 premium best sellers list, six of which settled within the Top 10. All of them within existing franchises, mind you, as is often the case in a world of brands and sequels.

The biggest among them being Marvel’s Spider-Man 2 which swung a victory as the month’s top earning game, experiencing a notable boost from leading on physical sales in particular. Congrats to everyone who participated in my poll and voted for Sony’s latest blockbuster hit!

It follows that Super Mario Bros. Wonder came in second place, with the usual caveat that Nintendo doesn’t share digital sales here for its published titles.

Supported by the system-seller that is a new Spider-Man game, Sony’s PlayStation 5 again led the Hardware segment. As it has most months this year except for May, trending towards winning 2023 overall in a fully-supplied environment.

Scroll down to get right into October’s data and lists, then my predictions for November.

United States Games Industry Sales (October 1st to October 28th, 2023)

Overall, consumers spent $4.04 billion across gaming in the U.S. during October, or 5% less than last year’s $4.27 billion. This lack of growth, despite all the great starts for software and healthy console dynamics, displays the power of Call of Duty: Modern Warfare 2 launching in last year’s corresponding period. It’s truly a rising tide that lifts all boats.

This latest sales number means 2023 is now tracking up 2%, towards $43.42 billion.

As the largest contributing segment, Video Game Content moved down 4% in October to $3.56 billion. It made up 88% of spending, compared to 86% a year back. Circana attributed it partially to lower downloaded games, even as physical console and mobile gained.

The Content category, which includes software, add-ons and subscriptions, is trending up 1% year-to-date to $37.64 billion.

Mobile was one of the bright spots, a trend we haven’t seen much in 2023. Spending in this area rose 2%, with the report highlighting a consistency among the top games and a notable jump for Clash of Clans back into the Top 10. October’s biggest mobile earners were, in order: MONOPOLY GO!, Royal Match, Roblox, Candy Crush Saga and Pokémon GO.

A variety of new launches bolstered premium software, more than I can remember compared to any month this year.

Marvel’s Spider-Man 2 web-launched above all others during its impressive debut, with launch month sales This year’s Insomniac Games’ open world comic adventure is already the 4th top seller of 2023 even with less than a month of tracking, a monumental win for Sony’s first party that benefited from huge physical sales and a higher price point.

Here’s where Super Mario Bros. Wonder slotted, in 2nd on the overall list and the leader of Nintendo Switch as a platform. It just missed the Top 20 for 2023 to date, at numero 21. Being the first 2D Mario title in over a decade, it’s hard to make legit comparisons for the domestic charts. So I’ll use Switch titles instead. Both Super Mario Odyssey and New Super Mario Bros. U Deluxe reached third during their respective debuts.

Rounding out the Top 3 was Assassin’s Creed Mirage, which continued as a quiet seller echoing recent announcements from Ubisoft on its successful start. Even as a more focused, lower-priced title than its recent predecessors. It began one spot below Assassin’s Creed Valhalla, which debuted in 2nd during November 2020, and the same position as Assassin’s Creed Odyssey in 2018.

Next up for new titles were two annual sports releases in UFC 5 and NHL 24 scoring 7th and 8th, respectively. This means Electronic Arts published four of the Top 8 titles, echoing its live service and ongoing game narrative.

Sega’s Sonic Superstars landed next at #9. For comparison, Sonic Frontiers sped to 4th last November. Beyond the Top 10, Metal Gear Solid: Master Collection Vol. 1 from Konami reached #12, Xbox’s Forza Motorsport reboot finished in 17th and CI Games’ Lords of the Fallen snuck on the list at #20.

You may notice one critical darling that’s missing from October. As I anticipated, Alan Wake 2 didn’t chart. The reasoning is pretty clear. Remedy Entertainment’s latest didn’t have a retail release and publisher Epic Games does not share digital sales. Meaning none of its sales were even counted in this context, thus it’s not comparable to more traditional software starts.

Moving briefly to the annual list right now, the Top 3 remained constant: Hogwarts Legacy, The Legend of Zelda: Tears of the Kingdom and Madden NFL 24. Then there’s the only new entry in Marvel’s Spider-Man 2, knocking Mario Kart 8 out of the Top 20 for the first time all year.

Check below for October’s aggregate premium rankings and 2023 so far.

Top-Selling Games of October 2023, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Marvel’s Spider-Man 2
  2. Super Mario Bros. Wonder*
  3. Assassin’s Creed Mirage
  4. Madden NFL 24
  5. EA Sports FC 24
  6. Mortal Kombat 1
  7. UFC 5
  8. NHL 24
  9. Sonic Superstars
  10. Hogwarts Legacy
  11. Call of Duty: Modern Warfare 2
  12. Metal Gear Solid: Master Collection Vol. 1
  13. NBA 2K24*
  14. Starfield
  15. Elden Ring
  16. The Crew Motorfest
  17. Forza Motorsport
  18. Star Wars Jedi: Survivor
  19. Minecraft
  20. Lords of the Fallen

Top-Selling Games of 2023 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Hogwarts Legacy
  2. The Legend of Zelda: Tears of the Kingdom*
  3. Madden NFL 24
  4. Marvel’s Spider-Man 2
  5. Diablo IV
  6. Call of Duty: Modern Warfare 2
  7. Star Wars Jedi: Survivor
  8. Mortal Kombat 1
  9. Starfield
  10. Resident Evil 4 Remake
  11. MLB: The Show 23^
  12. EA Sports FC 24
  13. Dead Island 2
  14. Final Fantasy XVI
  15. Street Fighter 6
  16. FIFA 23
  17. Elden Ring
  18. Armored Core VI: Fires of Rubicon
  19. Remnant II
  20. Dead Space Remake

Video Game Hardware took the biggest hit of all major segments in October, moving down 23% to $327 million. I don’t see this as a major story, just a move from one month to the next. So many folks picked up new consoles to play Call of Duty in October 2022, with comparable system sales shifting into November this year.

In stark comparison to the monthly figure, Hardware has grown the most through the first ten months of the year, up 6% to $4.03 billion.

The month’s best-selling console again went to PlayStation 5, as measured by both units sold and revenue generated. It’s continuing to track as 2023’s top device by both metrics.

Intriguingly, even during a month in which a new Mario launched, Xbox Series X|S earned 2nd place on dollar sales, while Nintendo Switch was the runner up by units. I’d imagine that’s partially because of a higher selling price for Xbox, and Switch sales are mostly double dips, Mario red OLED versions or purchases for kids as its audience is firmly saturated.

Similar to the movement of their overall category, all of the three big console families saw double-digit spending declines in October.

In addition to the monthly figures, Circana also provided a quick update on where lifetime figures are for the current generation consoles. Which have now been on market for nearly three years! PlayStation 5 is currently 9% above the PlayStation 4, while the Xbox Series X|S family is tracking behind Xbox One by 11%. Makes sense, given the dichotomy between each company’s approach.

Within our final category of Video Game Accessories, spending last month lowered 2% to $147 million. The most modest of declines compared to its counterparts.

Through October, buyers have purchased $1.75 billion worth of Accessories, or 1% higher than the same time frame in 2022.

October’s top earning peripheral was Sony’s PlayStation 5 DualSense in midnight black. I was expecting that the Marvel’s Spider Man 2 Limited Edition controller might win again, as it did in September, though this result is probably more about limited supply than consumer sentiment.

I’ll confirm with Circana on the current annual best seller, which I believe is still the premium tier PlayStation 5 DualSense Edge based on just how much revenue it generates per sale alone.

Now, what about the Meta Quest 3? Didn’t it launch in mid-October?

It did. However, it wouldn’t be included in this particular industry report. Circana confirmed that Meta Quest headset spending isn’t considered gaming for their tracking purposes. Rather, it’s a “a multi-function device.” Which means that Circana’s Technology group reports on Meta Quest.

Compare that to something more streamlined for gaming like PlayStation VR 2, which is included. Even if it remains a somewhat small portion of the pie.

This treatment truly affects the Accessories numbers because Meta Quest has proven to have the most widespread appeal of any augmented or virtual reality device across the consumer space.

Before I recap and shift to predictions, here’s an added bonus: Circana’s new engagement rankings by platform! As part of its public report, the company is now sharing the most played titles across PlayStation, Xbox and Valve Corporation’s Steam digital marketplace for PC titles. Here’s a look at those, in order of Monthly Active Users (MAUs).

During October, Call of Duty: Modern Warfare 2, Fortnite and Marvel’s Spider-Man 2 were the most-played on PlayStation. When it came to Xbox, it’s the same top 2 games then Grand Theft Auto V reached third. Counter-Strike 2, Baldur’s Gate 3 and Cyberpunk 2077 were the most played on Steam. Other standouts included Roblox starting in 4th on PlayStation, Forza Motorsport zooming to 7th on Xbox and The Finals beta landing it in 4th on Steam.

While October’s total spend declined, there’s a clear reason for it and it won’t really impact 2023’s overall result other than shifting spending on Call of Duty to November. Separate of that, which is a purely hypothetical scenario of course, I’d bet October spending would have grown against last year, especially within Content.

On social media, Piscatella mentioned Hardware in particular didn’t have a surprising result, although he believe it was below that which the platform holders expected. He anticipates more discounting and promotion in the coming months. Plus, he’s becoming more cautious on his annual forecast of 3% spending growth in 2023.

Speaking of looking ahead, I’m looking at spending gains in November driven by what I expect to be the biggest seller in Call of Duty: Modern Warfare 3.

Even with lackluster reviews, it’s still the single most popular gaming brand in the country. It will catapult up the annual chart to become 2023’s best seller, maybe even in November’s report. I expect yet another year where two Call of Duty titles end up in the Top 10.

Now that October is behind us, the release slate is slowing down considerably. There’s a couple niche Nintendo titles in WarioWare: Move it! and Super Mario RPG remake, both of which will end up charting, the latter having more upside into possibly the Top 7. Otherwise, I think Sega’s Like a Dragon Gaiden: The Man Who Erased His Name can surprise, reaching a Top 15 start. There’s also Robocop: Rogue City which garnered more critical appeal than anyone ever thought it would. Why not, let’s say it gets a Top 20 start!

It’s a key time for Hardware approaching the November pre-holiday and the Black Friday period here in the States. I expect a comparable dynamic as October where PlayStation 5 will lead on revenue and units, with Xbox in second by dollars and Switch by units. Especially given the new PlayStation 5 model is now on sale, just in time for shopping sprees to begin.

This is where I recommend hopping over to Piscatella’s Twitter thread for further details and a complete rundown of those spankin’ new engagement lists.

I remain eternally thankful you are checking out the site! Stay well as the holiday season approaches.

Note: Comparisons are year-over-year unless otherwise noted.

*Digital Sales Not Included

^Xbox & Nintendo Digital Sales Not Included

Sources: Circana, Nintendo, PlayStation Blog, Sony Interactive Entertainment, Ubisoft Entertainment.

-Dom

PlayStation Hits Its Best Second Quarter Sales Ever as PS5 & Third Party Games Lift Sony’s FY 2023 Q2 Report

DomsPlaying

No rest for the writer!

Today continues an especially busy stretch of this latest earnings season, as Sony Corp just reported its fiscal 2023 second quarter results today out of Japan.

During this three months ending September, both the firm overall and the PlayStation division experienced revenue growth. And while profitability declined at the company level, the amount earned by Sony’s gaming business moved up double digits.

In fact, PlayStation just generated its best ever Q2 revenue in history.

That marks multiple record-breaking quarters in a row for Sony’s Game & Network Services (G&NS) segment, since Q1 hit its own all-time high as I covered a few months back. This past second quarter saw sales zip past $6 billion for the first time, jumping up more than 30% since last year.

Plus, unlike back in June, PlayStation has bounced back to profit growth this time. I’d argue this is even more substantial than record revenue because it accounts for expenses and really gets to the core of its ongoing health amidst a most turbulent of industries.

Underlying momentum was a higher PlayStation 5 contribution alongside better third party and add-on content performance. On the profit side, signs point to the Bungie acquisition costs being fully recognized, since there’s no longer a mention of the deal. Caveat being, similar to Nintendo, we can’t forget about the yen’s weakness on results for these kinds of Japanese companies that have a ton of overseas sales.

One major component is how PlayStation 5 shipped 4.9 million units between July and September, notably more than this time last year and the corresponding quarter for PlayStation 4. This figure was within management’s forecast, pushing lifetime PlayStation 5 sales to 46.6 million and closing the gap with its predecessor when launch-aligned, as I’ll dig into later.

As for the group’s forecast, executives increased guidance for annual gaming revenue across fiscal 2023 while maintaining guidance for operating income and PlayStation 5 hardware shipments at 25 million, which would be the single best year ever for the brand’s console output.

“We recognize selling more than 25 million PlayStation 5 units this fiscal year remains a challenging goal,” said Chief Financial Officer (CFO) Hiroki Totoki when talking to the media. “It will depend on how sales do in the year-end holiday season. We won’t pursue expanding the PlayStation 5 installment base alone, but will keep profitability in mind.”

Scroll down for a swing through the numbers then a set of my own predictions alongside Sony’s future forecasts.

Total revenue for Sony as a whole rose 3% to $19.6 billion, with the biggest growth contribution from G&NS, Sony Pictures and Music, offset by declines in other areas. However, operating profit at the group level declined 24% to $1.82 billion. This was led by quarterly declines for Financial Services, Imaging & Sensing Solutions and Entertainment, Technology & Services segments.

Focusing strictly on PlayStation during the three months ending September, revenue jumped up 32% to $6.6 billion. That’s an entire third of Sony’s overall business. It’s what I call a massive all-time number, considering last year’s $5 billion or so was also a Q2 record at the time.

A crucial note both in the broader context and at the PlayStation level is the specific impact of currency movement. Out of the $1.6 billion growth, upwards of $410 million is strictly because of foreign exchange rate changes. This helps understand how much of the trajectory is organic, compared to an economic market force like yen weakness.

Reversing its fortune compared to a decline in Q1, operating profit for G&NS moved up an impressive 16% to $340 million. That’s 19% of Sony’s group total. Affecting the plus side were both third party content sales and currency movement, plus there’s no longer any mention of certain acquisition costs that were dragging down profitability. I believe the $3.6 billion purchase of Bungie has been fully recognized now and will no longer affect the bottom line. On the downside, management cited how hardware has produced increased losses, I’d imagine due to higher manufacturing costs.

Checking out product category splits, which are shown in the last graph above, Hardware sales grew a whopping 60% since last year and contributed 30% of PlayStation’s total. The next largest segment at 23% of the pie was Add-On Content, moving up 18% in dollar value. Digital Software produced 39% growth, settling at 21% of the total. In fact, the only product type to decline was Physical Software, down a modest 4%.

Annual PlayStation revenue is tracking towards $28 billion. As you can see in the gallery above, on the revenue graph, this is well above the highest it’s ever been, over a billion more than last quarter. Essentially, if this keeps up, Sony’s gaming unit will have its best year of sales ever. On the other hand, annualized operating profit is at $1.75 billion, which compares more to the late days of the PlayStation 4 life cycle. Still great in a historical context, just not as strong as the past three years or so.

As of this week, the “big three” console manufactures have all reported their latest results. The sole remaining biggest player is Tencent, which will be later this month. Right now for comparison purposes, Sony’s $28 billion is tops for the industry. Even if backing out currency impact, it’s well in the lead. Tencent generated $25 billion as of last quarter, and Microsoft’s Xbox segment saw almost $16 billion (though that’s before accounting for anything from Activision Blizzard). Nintendo’s at $13 billion, albeit with more than twice as much annualized operating profit than PlayStation: $4.2 billion compared to $1.75 billion, respectively.

Heads up: enhanced launch-aligned PlayStation console sales chart is live!

This fancy visual aid gives more context to PlayStation 5’s improving shipment numbers. The console’s 4.9 million units sold-in last quarter is an increase of 48% compared to the 3.3 million in Q2 last year. Plus, it’s 26% higher than the PlayStation 4’s 3.9 million in the corresponding second quarter of fiscal 2016.

It’s the fourth quarter since PlayStation 5’s release in November 2020 that it moved more than 4 million units in a quarter, and one of those was that launch period.

Which means that PlayStation 5, at 46.6 million lifetime, has reversed course and narrowed the gap against its predecessor this quarter. It’s presently only a million units away from reaching PlayStation 4, boosting its trajectory since the supply challenges of yesteryear.

This latest lifetime figure means it’s also passed another gaming device on the all-time best-sellers list. That would be Nintendo’s 1980 handheld the Game & Watch, of course, which ended its tenure at 43.4 million. Next up will be Nintendo’s classic Super NES, which sold 49.1 million globally.

One statistic that Sony didn’t update was console sell-thru to consumers. Probably because it usually waits until a big milestone in order to do so. Earlier this year, the PlayStation 5 reached 40 million sold-thru as of July 16th. I’d bet it’s a bit higher now, maybe in the 45 million range, especially ahead of a system-seller like Marvel’s Spider-Man 2. I don’t see a reason demand would have fallen off.

Digging more into the supplemental stats present in PlayStation’s presentation, full game software unit sales stood at 67.6 million in Q2, up from 62.5 million last year. However, due to a lighter calendar, the proportion of first-party published games was lower, making up 7% of that total as opposed to 11% a year back.

Digital versions accounted for 67% of PlayStation game sales, up from 63% in September 2022. This means that 2 out of every 3 premium games purchased for Sony’s platforms were downloadable.

As for player engagement, Monthly Active Users (MAUs) across all of PlayStation Network totaled 107 million as of September month-end. While this is down a million from the June quarter, it’s up 5 million since last year’s Q2. Management also said that total hours played moved up 4% in the latest three months.

Here is where I’ll continue to lament the loss of PlayStation Plus membership numbers, which Sony stopped reporting earlier this year. It will forever, at least for the foreseeable future, remain cemented at 47.4 million as of March 2023.

It’s been a historic run lately for Sony’s top-line gaming numbers, pumping out multiple quarter’s worth of record revenue and generating more than $6 billion in second quarter sales for the first time. PlayStation is the premier industry player by revenue right now, even if backing out the impact from the yen’s depreciation.

Profitability has certainly been more questionable, partially because of temporary factors like studio investments, acquisition expenses and hardware manufacturing costs. Still, it achieved a double-digit income boost in Q2 on hardware units ramp up and software support from external partners like Electronic Arts and Take-Two Interactive with their respective sports titles, plus something like Diablo IV from Blizzard Entertainment and the Warner Brothers Mortal Kombat 1.

Which is why it’s even more painful to hear about layoffs at various PlayStation studios, including Media Molecule, Visual Arts and Bungie. There continues to be a disconnect between executives and everyone else. It’s not just at Sony, this is just one of the more glaring examples especially as its profitability gets back on track.

Impossible as it is to follow that up, I’ll take a look now at the company’s forecast and make some quick predictions.

The firm revised its fiscal year 2024 PlayStation revenue upwards by 5%. Management now thinks gaming sales will surpass $30 billion when the 12 months end in March 2024, in what would be an astonishing finish and record-breaking result. It then reiterated operating profit guidance of $1.87 billion.

In order to hit the 25 million PlayStation 5 hardware unit target, it still needs to ship almost 17 million units across the next two quarters. 16.8 million to be exact. Even with new PlayStation 5 slim models and the PlayStation Portal, this remains a staggering target that will require an absurd holiday number then a miraculous January to March. For context, the largest holiday season ever for PlayStation 4 was 9.7 million in fiscal 2016, and its largest March quarter was 3.1 million right after launch.

Yea, I’m still not a believer. In that overly ambitious forecast or the over-priced peripheral that is the PlayStation Portal. I’ll keep my same prediction as back in August: 24 million to 24.5 million, leaning more towards the lower end.

With respect to software, note that Marvel’s Spider-Man 2 launched after the three months covered here. Still, Sony shared a sales update for Insomniac Games’ latest open world adventure, selling-thru 5 million copies to consumers after 11 days. It had previously started with the best first 24 hours in PlayStation history, at 2.5 million copies. It’s since fallen behind God of War: Ragnarök at 5.1 million in 3 days, nearly a year ago to the day. The Last of Us: Part 2 moved 4 million copies during its opening 3 days back in June 2020.

All in all, it’s a fantastic launch for Peter Parker and Miles Morales considering the size of the PlayStation 5 install base, clearly bolstering the company’s expectations for the back half of this year.

The final bit of relevant news from Sony’s earnings was a comment around its live service strategy, moving into next fiscal year and beyond. As reported by Video Games Chronicle, CFO Hiroki Totoki mentioned that out of its previously-planned 12 live service titles originally scheduled for launch by end of Fiscal 2025, only half of them are on target. Considering how much time and money Sony is putting into this effort, moving them out is a big deal for its financial future and resource allocation. Personally, I remain skeptical that all of them well actually hit market at any point.

Whew. Well, that’s a wild week of coverage coming to a close. I hope you enjoyed this latest recap. Thanks much for hanging around during this season. I’ll have more coverage here and on social media as another eventful year approaches its inevitable end. Take care!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥144.4.

Sources: Company Investor Relations Websites, Yahoo Finance, Video Games Chronicle.

-Dom

Nintendo Achieves Best 1st Half Sales of Switch Era & Raises Financial & Software Forecasts in 2024 Q2 Report

DomsPlaying

It’s a busy week here at the site and on socials, partly because the earnings calendar is packed. So, there’s no time to waste, I’ll get right into the topic at hand.

Nintendo reported its second quarter of its fiscal 2024 yesterday, which showcased a fantastic first six months. With sales rising more than 20%, this time frame ended up being the single biggest first half of a fiscal year for revenue since the Switch launched back in 2017.

With a couple of caveats. As always.

First, the results were mostly driven by the record first quarter that I wrote about in August. When focusing strictly on the April to June period, revenue and operating profit declined 4% and 20%, respectively due to a relatively light launch schedule and lower quarterly Switch hardware output than a year ago.

Beyond these dynamics, Japan is currently seeing its worst local currency depreciation in decades. Which is always worth mentioning in this context, and Nintendo specifically cites the yen movement in its report, because it has a notable effect on Japanese companies that operate globally.

Echoing this, Switch hardware unit shipments totaled 2.93 million in the quarter. That’s off 10% from the 3.25 million this time last year. Still, it pushed Switch lifetime shipments to 132.46 million, making it only the third gaming hardware ever to pass the 130 million mark.

In terms of new games, Pikmin 4 was Switch’s big title during the quarter, and has shipped 2.61 million copies since June. This amount means it’s already the highest-selling game in the franchise to date. Add it to the list of titles impacted by the Switch effect, which often boosts new titles in existing series to all-time sales records.

The Legend of Zelda: Tears of the Kingdom also contributed to software and continued its monumental run, now approaching the 20 million unit milestone in just its second quarter. The latest mainline Zelda is a smash hit, already at almost two-thirds of 2017’s classic Breath of the Wild lifetime sales!

In what I’d argue is the most important part of the report, and something I predicted would happen during my Q1 article, Nintendo raised most of its guidance for the full financial year. Management now expects higher revenue, operating profit, software unit shipments and will pay a higher dividend to shareholders. The only thing it didn’t raise was Switch hardware shipments, which it “only” reiterated at the current level of expectation.

“For hardware, by continuing to convey the appeal of Nintendo Switch, we try not only to put one system in every home, but several in every home, or even one for every person,” the company said related to its forecast. “Another objective is to continually release new offerings so more consumers
keep playing Nintendo Switch even longer and we can maximize hardware sales.”

Here’s quick bonus for something that happened after this financial period: Nintendo announced today that Super Mario Bros. Wonder sold-thru 4.3 million units to consumers during two weeks on sale. This makes it the fastest-selling Super Mario title, at least since the firm began tracking this stat in 2004. No wonder execs are more optimistic after yet another historic Switch launch.

Just like Drill Mario would, I’m now going to dig deeper into the numbers.

I’ll first address its quarterly earnings then expand to the 1st half and annualized figures for greater context on how Nintendo’s business is faring over time.

For the second quarter alone, revenue came in at $2.38 billion or 4% lower than a year back. Operating profit dropped 20% to $670 million. Which checks out, due to the big release of this period being Pikmin 4 plus Switch has almost achieved hardware saturation in its likely last year.

Taking the full six months into account, Nintendo achieved $5.65 billion in sales and $1.99 billion in operating income, increases of 21% and 27% respectively. That sales number is above even Switch’s best year in 2020, and operating profit is not far off from that year’s high either.

While this is certainly bumped up by out-performance of Tears of the Kingdom and the Super Mario Bros. Movie, slightly higher hardware units and early upside from Pikmin 4, there’s also the element of yen depreciation. While currency movement is usually more temporary, Japan’s currency weakness has been ongoing for many quarters now.

Taking a look into product categories, Nintendo’s hardware business accounted for around 41% of sales during both the first quarter and six months. That’s relatively constant since last year, when it was at 40%. Software accounted for the remaining 59% this time around, where it was 60% last year. A system-seller like Zelda plus certain bundles continue to prop up console sales this late in the cycle.

From a regional perspective, sales shifted out of Japan and into other territories. Both the Americas and Europe stayed the same since last year, contributing 44% and 23%, respectively. Japan declined from 24% to 21%, while what Nintendo classifies as Other jumped up from 9% to 12%.

Both digital and Intellectual Property (IP) related sales experienced the most growth during Nintendo’s first fiscal half, even if these areas still don’t represent a major portion of sales. Digital revenue output moved up 16%, and accounted for exactly half of the company’s Q2 dollar sales, virtually the same as the 51% a year ago. The mobile and IP-related category more than doubled, jumping 133%. Growth came more so from the IP side than mobile, as The Super Mario Bros. Movie stands at over $1.36 billion in box office earnings.

Combining the last four quarters, the company’s trailing 12-month revenue is currently at $13 billion. While down slightly since last quarter’s $13.12 billion, it’s up 6% year-on-year. Annualized operating profit is tracking towards $4.2 billion, down only slightly compared to both Q1 and last year’s second quarter.

If the revenue number holds, and the firm hits its latest target, Nintendo could achieve the highest annual sales since Wii’s massive popularity in 2008, even with the Switch hanging on during its twilight years.

Pulling a similar passage from my last Microsoft write-up, I’d like to compare industry peers to get a sense of where all of them stand right now. Sony, which reports results tomorrow, had PlayStation revenue upwards of $27.8 billion at last count. Tencent came in next at $25 billion, then Microsoft generated $15.78 billion before the Activision Blizzard deal closed. This is where Nintendo slots, at $13 billion. One thing to note is that Nintendo is more profitable than Sony, which is the only firm out of these four that reports profit numbers for gaming, and I’d imagine it has better margins than Microsoft’s Xbox business with its big investments and product expenses lately.

I mentioned a bit about Nintendo’s hardware results up front, I’ll now get into a more detailed breakdown of this product category.

The second quarter saw those 2.93 million Switch shipped to market, compared to 3.25 million a year ago. This tracks, notably after just how many units moved during the prior quarter, including a desirable special edition for Zelda.

Now, during the first six months of fiscal 2024, Switch sales moved up 2% to 6.84 million. While not quite at the highs of the Switch’s glory days in 2020 to 2022, it is above earlier shipments figures before 2019 during the corresponding time frame.

This shows the utter resilience of Nintendo’s hardware appeal, and making games that translate well from console to handheld. Plus, it highlights how the move to an OLED model replacing the base model drives people to picking up multiple devices for themselves or household members.

Out of those 6.84 million for the first half, 4.69 million were OLED versions. That makes up 69% of the total, and it’s 32% higher than last year’s figure. In fact, it’s the only model to grow over this time frame, considering the base model dropped 44% to 1.25 million units and Switch Lite moved down a more modest 2% to 900K.

This continues to life the lifetime Switch hardware figure, now standing at that 132.46 million. Which is still wild to write, mainly because of how it’s outpaced all expectations. Even mine and Nintendo’s itself. Thing is, while it’s secured a Top 3 spot on the all-time best-selling console list, I don’t see it moving up any further assuming Super Switch is out within the next 12 months. There’s still a 21.56 million gap between Switch and Nintendo DS at 154.02 million.

Then again, the Switch has exceeded all expectations thus far. It might surprise me.

One additional item that I found disappointing from Nintendo’s report is there wasn’t any further detail on console sell-thru to consumers, which it has recently added to its explanatory material. This is likely because it’s trending downward. Still, I’d rather the more data, the better. Maybe next time.

I’ll now take a similar look at the current software dynamic for Nintendo, the segment that makes up the majority of its business right now.

Overall Switch software unit sales in the quarter totaled 44.87 million, down 14% from 54 million. On the flip side, 1st half game sales rose 2% from 95.41 million to 97.08 million. It helps to have one of the highest-rated titles of all time launched in this period in Tears of the Kingdom.

These results drove lifetime software sales for Switch to pass yet another major milestone, this time surpassing 1.1 billion copies sold. It’s now upwards of 1.13 billion, an astonishing result. For perspective, the DS and Wii never reached a billion, even with the former selling many more hardware units. The sheer number of games that Switch owners buy, especially first party, is higher than any Nintendo device in history.

Speaking of big sellers, the number of games that have shipped over a million units during the current fiscal year jumped up a sizeable amount. There were only two back in Q1, just Tears of the Kingdom and the ever-present Mario Kart 8 Deluxe. The Q2 number was 16. Out of these, 12 were published by Nintendo while 4 were produced by third parties.

Chief among them being Pikmin 4, hitting that all-time high for a Pikmin franchise game of 2.61 million units in a single quarter. The previous record holder was Pikmin 3 Deluxe, another Switch title that has moved 2.4 million copies since October 2020.

I will point out that while the latest title has the best lifetime unit sales already, it currently has a lower attach rate than its predecessor partially because of just how many Switch have flooded the market. Pikmin 3 sold 1.28 million, or 9% of Wii U console sales, while Pikmin 4 stands at a 2% attach rate. For the time being.

Separately, it’s hard to overstate the pure magnitude of Tears of the Kingdom. The title sold another million units in the quarter ending September, bringing lifetime sales to 19.5 million. It’s not often that a game approaches 20 million units in a couple quarters. Thus, the title held its position as the 9th best-selling Switch title and will easily surpass Super Mario Party‘s 19.66 million next quarter.

I can’t write about Nintendo earnings and not mention Mario Kart 8 Deluxe, the game that never stops selling. It sold more copies than the brand new Zelda title last quarter, moving over a million and a half in Q2 alone. This game is almost a decade old, people! After this latest boost, the Switch version has officially passed 57 million sold to date.

Elsewhere in terms of new milestones, 2022’s Nintendo Switch Sports scored a new mark, passing 10 million to settle at 10.77 million.

While Nintendo usually reports on shipped numbers, it did share some insight into sell-thru to consumers. In addition to the aforementioned record launch for Super Mario Bros. Wonder, Pikmin 4 has sold-thru 2.5 million units globally as of last week, the largest start in series history.

As for engagement and player stats, Nintendo hit us with an update on Switch Online memberships and (its made-up stat of) Annual Playing Users, both of which are growing at this time as the user base expands. Switch Online subscribers now stand at 38 million, up from 36 million as of September 2022. Annual Playing Users, which is the number of people who have played a single game on Switch in the last 12 months, moved up to 117 million. It was 116 million in Q1, and 108 million last year.

Even considering the latest quarter trending down a bit, Nintendo bucked the trend of an aging console during the first half of fiscal 2024, turning it into a historic one for top-line sales compared to all others since the Switch first launched. It certainly helped to have a blockbuster movie to supplement traditional revenue streams, capitalizing on the quality of its big brand identities.

For a console manufacturer, this highlights the need to diversify. Especially when deep into a hardware cycle at a time when investment is ramping up for the next big device and its corresponding launch lineup.

Nintendo has mixed success in the past leveraging IP in various types of media. The last few months show it’s possible, between theme parks and film, proving there’s major upside as long as they instill that magic that has defined the company for generations and appeal to a multi-generational audience. Cross-media is a core factor behind what’s becoming a banner year for the publisher. And now with the announcement of a live-action Zelda flick in development, it will shape the company’s future income as well.

Here’s where I’ll look at that updated forecast, moving into the pivotal back half of the 2024 fiscal period.

Executives increased annual guidance for overall revenue by 9% to $11.2 billion. Operating profit guidance rose 11%, now expecting $3.55 billion. Additionally, it now expects to sell 185 million units of software during the full year, 3% higher than its initial forecast.

I honestly think the financial targets are still too conservative, based on the annualized numbers I referenced earlier. I think management will slightly increase revenue and profit estimates in its next report.

The firm also confirmed annual Switch hardware unit sales guidance at 15 million. That means between the holiday quarter and the first calendar year quarter, it needs to move 8.16 million more units. For context, last year’s December quarter alone saw sales of 8.23 million. While the Switch is a year older, I believe Super Mario Bros. Wonder among other title launches, a new Red Mario OLED model and a Super Smash Bros. Ultimate bundle can produce enough sales to beat the current estimate.

Even though I’m bullish, I’m slightly less upbeat than I was three months ago. I will slightly reduce my target, now expecting between 16 million to 16.5 million in the year ending March 2024.

2023 has been a huge year for Nintendo’s first-party lineup, across mainline Zelda and Mario titles alone, and I believe it has a decent supplemental slate for the holidays that can lead to financial targets being beat. Detective Pikachu Returns, WarioWare: Move It!, a remake of Super Mario RPG plus more content for Mario Kart and Pokémon titles will act as a second helping to the ongoing main courses of Zelda and Mario.

As for what’s ahead in 2024 and beyond, notably for the console transition, I’ll address those in a future article. For now, that does it for Nintendo’s latest quarter. Stay tuned this week for Sony’s results, and hop over to the earnings calendar to track everything this season.

Thanks for reading! Take care, all.

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥140.96.

Sources: Bloomberg, Company Investor Relations Websites.

-Dom