Tag: Industry

The Legend of Zelda: Tears of the Kingdom & Nintendo Ascend to Top of May 2023 Circana U.S. Games Sales Report

DomsPlaying

As we near the end of 2023’s first half, I’m back with another monthly sales recap!

This time, industry tracking firm Circana shared May consumer spending results across the United States games industry. As I expected when I wrote a preview last month, and what was the easiest prediction I’ve maybe ever made, Nintendo dominated the conversation and charts.

Which it often does during flagship title launches, especially in the current Switch era. This time it was the month’s best-selling The Legend of Zelda: Tears of the Kingdom hitting market in mid-May, proving to be perhaps the most popular game during a year stacked with great releases.

In the scheme of things, last month was mostly quiet in terms of quantity of premium titles. Yet the one big launch was just that: massive. Between software sales and corresponding hardware units, Tears of the Kingdom boosted total spending to double-digit growth for the first time in 2023.

All three categories of Video Game Content, Hardware and Accessories moved up, the latter two also in the double-digit range. Hardware dollar sales alone jumped over 55%.

Content saw positive contributions from full game premium software and add-on content, even with Tears of the Kingdom being the only new game among the Top 20 best sellers, however other key areas like mobile and PC suffered declines.

Hardware reflected this mainline Zelda push in that Nintendo Switch returned to win by dollars and units. It’s the first time all year the aging Switch has led on revenue. In fact, Nintendo’s hybrid console generated the most ever May month dollar sales since its launch in 2017.

“Improved PlayStation supply has been one of the most talked about stories of the market in 2023, said Circana’s Mat Piscatella on Twitter. “Every month leading into May it’s been all about PlayStation 5. This month Zelda is the big story.”

Check below for a deeper look at the data set, then a recap and predictions leading into June.

United States Games Industry Sales (April 30th – May 27th, 2023)

Overall video game sales reached $4.12 billion during May, up a strong 12% since last year. This means that for the first time since February, year-to-date spend has turned positive. It’s now at $21.83 billion, up from $21.77 billion thru the same five month period in 2022.

This positive momentum has picked up steam with better console availability and mainstream AAA releases, even as mobile continues to show weakness and subscription growth keeps slowing. People are hitting retail to buy the latest family of PlayStation devices or supplement their Switch ownership with an additional unit for family members to experience Tears of the Kingdom, the biggest global Nintendo launch on any of its storied platforms.

Content as a category, which includes software and related sales, rose 9% last month to $3.62 billion. Thus making up 89% of May’s spend, compared to 90% last year. One area of strength was retail software sales, in particular. For 2023 so far, it’s trending towards growth although not quite there. Currently, annual Content spend is down 2% to $18.73 billion. It was over $19 billion through May in 2022.

As I’ve written about extensively in recent reports, mobile spending keeps trending down. While Circana didn’t share a year-over-year comparison, Sensor Tower said in the announcement that May mobile spending was 2% lower than April. The month’s top earning mobile titles were Candy Crush Saga, Roblox, Royal Match, Gardenscapes and Homescapes.

Tears of the Kingdom comfortably led the premium software list and is immediately 2023’s second top-seller behind only Hogwarts Legacy, which has three months of sales under its belt. All of this accomplished without digital, since Nintendo doesn’t include that portion. That’s right: Using solely retail box sales, which are an increasingly smaller slice of the industry as it shifts towards downloads, Tears of the Kingdom was May’s winner and presently the year’s runner-up.

“New physical video game software spending reached its highest May total since May 2014.” said Piscatella. Not that physical really dictates where the market goes anymore. (Except for Nintendo in this context, I suppose.)

Below the aforementioned Warner Bros product Hogwarts Legacy, which ranked in second, April’s winner Star Wars Jedi: Survivor from Electronic Arts moved down to third place. Rounding out the Top 5 were a pair of sequels in Dead Island 2 and Call of Duty: Modern Warfare 2 from Embracer Group and Activision Blizzard, respectively.

Two of the month’s biggest movers were Ubisoft’s Far Cry 6 jumping back into the Top 10 plus The Legend of Zelda: Breath of the Wild returning to chart in 13th, clearly benefiting from Zelda fever.

In a fun twist, at least for us data nerds, Circana provided additional tidbits around player engagement. The team shared the most played games of May, as measured by percentage of the polled panel playing at least one of these titles in the tracked period. On PlayStation platforms, it was Fortnite, Call of Duty: Modern Warfare 2, Grand Theft Auto V, NBA 2K23 and Apex Legends. For Xbox, it’s a similar list: Fortnite, Call of Duty: Modern Warfare 2, Grand Theft Auto V, Minecraft and Roblox.

Swapping back to premium, the 2023 annual ranks so far stayed pretty stagnant except for the introduction of Tears of the Kingdom into that second slot. Resident Evil 4 Remake now rounds out the Top 5, while Dead Space Remake fell a couple spots to #9. Elden Ring is no longer among the Top 10, ever slightly below in 11th, while Forspoken is hanging on for dear life in the Top 20 at 19th.

Here’s a full look at the overall software charts, which are sorted by dollar sales.

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

  1. The Legend of Zelda: Tears of the Kingdom*
  2. Hogwarts Legacy
  3. Star Wars Jedi: Survivor
  4. Dead Island 2
  5. Call of Duty: Modern Warfare 2
  6. MLB: The Show 23^
  7. FIFA 23
  8. Mario Kart 8*
  9. Resident Evil 4 Remake
  10. Far Cry 6
  11. Elden Ring
  12. Minecraft
  13. The Legend of Zelda: Breath of the Wild*
  14. Super Smash Bros. Ultimate*
  15. Madden NFL 23
  16. God of War: Ragnarök
  17. New Super Mario Bros. U Deluxe*
  18. Pokémon Scarlet & Violet*
  19. LEGO Star Wars: The Skywalker Saga
  20. Super Mario 3D World + Bowser’s Fury*

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. Call of Duty: Modern Warfare 2
  4. Star Wars Jedi: Survivor
  5. Resident Evil 4 Remake
  6. MLB: The Show 23^
  7. Dead Island 2
  8. FIFA 23
  9. Dead Space Remake
  10. Madden NFL 23
  11. Elden Ring
  12. The Last of Us Part 1
  13. Mario Kart 8*
  14. God of War: Ragnarök
  15. Minecraft
  16. Pokémon Scarlet & Violet*
  17. Fire Emblem Engage*
  18. Sonic Frontiers
  19. Forspoken
  20. NBA 2K23*

As the Hardware segment has done all year, it again exhibited resilience in May, completely rebounding from earlier inventory issues. Spending here skyrocketed 56% to $338 million. This leads to 2023 sales of $2.16 billion right now, or 23% higher than the $1.76 billion thru May last year.

It’s Nintendo and Sony leading the charge yet again, establishing that anyone can go out and purchase their respective consoles as hearts desire. Both companies are seeing hardware sales growth domestically, while Microsoft’s Xbox family isn’t faring nearly as well.

Nintendo Switch boosted to double digit growth since last May, securing the month’s top spot by revenue and units. I mentioned earlier this was its best May ever for dollars. In addition, this was the second best May ever for unit sales, behind only May 2020 which was near the peak of the Animal Crossing: New Horizons craze and quarantine-fueled interest in gaming at home.

Sony secured May’s second best-selling console in PlayStation 5, generating even more percentage gains than Switch. In the “triple digits” according to Circana, meaning at least double the dollar sales of May 2022. PlayStation 5 is still this year’s best-selling hardware, by both dollars and units sold, proving that Sony has been consistent in attracting players to its current generation.

The glaring omission from any performance or growth comments was Xbox Series X|S, thus its sales were lower than last May. It’s again in third place, as its top brass has repeatedly reiterated during the ongoing Microsoft vs The Federal Trade Commission (FTC) trial. In fact, the company’s gaming lead Phil Spencer outright declared that Xbox has “lost the console war.” Even if that war is a “social construct,” according to him, the referenced 16% global market share for Xbox is certainly lacking.

This year’s U.S. sales reports reinforce how Microsoft is consistently behind its peers. Never mind how its business does $16 billion a year in revenue, partially due to a shift of focus away from traditional consoles and towards services like Xbox Game Pass and cloud. But I digress.

Anyways, back to May to wrap up the last of its three major categories in Accessories.

Last month, spending across game pads, peripherals and the like moved up 14% to $159 million. It’s steadily moving upwards for 2023, now at $937 million or 3% higher than the corresponding five month period last year.

In terms of individual accessories, the premium PlayStation 5 DualSense Edge Wireless Controller in all black generated the most dollar sales during May. It’s also maintained its annual lead so far.

Echoing earlier comments around Nintendo and its contributions, The Legend of Zelda: Tears of the Kingdom Series 1 Amiibo Character Pack was May’s top-selling accessory when measured by units.

This report was one of the most straightforward in recent memory. When Nintendo puts out the follow-up to one of the best games ever made, the market tends to listen. And, importantly, spend. Zelda and Switch were the conversation in May, especially since mobile is performing so unevenly and there’s not many brand new premium titles competing for the charts.

Piscatella noted on Twitter that he sees “software getting more top heavy” which “could be tough sledding for games not at the top of the charts.” This is especially true in a modernizing industry that values evergreen, big budget titles.

There’s also subscriptions, where Circana said growth is regulating and normalizing during a user retention phase, as opposed to a user attraction period. Sounds like Xbox Game Pass and the rebranded PlayStation Plus have their base, and aren’t adding as many payers as they were in recent years.

Going forward, June will mark the end of 2023’s first half already!

At present, domestic games spending is trending to be flat for the first six months. Unless June provides a notable boost, which I don’t think it will because I see low single-digit growth, the first half of 2023 might be up a percent or two.

Within premium Content, I expect Tears of the Kingdom to have another great month as a carry-on from May. It’s the type of game that will appear in these charts all year. Just like Hogwarts Legacy has done, which will be among the best-sellers.

For new releases that can compete, I expect Diablo IV from Blizzard to be the best-selling title of June with a potential record first month for the franchise. It’s had a Hell of a start globally, the best in Blizzard’s history, and is a multi-platform juggernaut. It should easily make 2023’s Top 5 list instantly, and could compete to be the year’s top-selling premium title.

Then there’s a pair of Japanese games that will be among June’s top sellers in Capcom’s Street Fighter 6 and Square Enix’s Final Fantasy XVI.

Street Fighter 6 crossed the 1 million copies sold mark within three days of launch, and I believe will fight to a Top 5 position on the overall ranks. And even with Final Fantasy XVI launching on a single platform in PlayStation 5, I expect a similar positioning. Publisher Square Enix announced today that shipped over 3 million units globally during its initial week on sale.

Elsewhere, the F1 series is usually a quiet seller, even if not the most popular. I say F1 23 will be among the Top 15. Then, talk about quiet, there’s Nintendo’s Everybody 1-2 Switch, the successor to Switch launch game 1-2 Switch that debuts a couple days before the June tracking period ends. While I’m usually upbeat on Switch games, that’s not the case here. With it being a lower-priced title and Nintendo not sharing digital, I expect it to miss the Top 20.

For the Hardware segment, it’s going to be a classic battle between Sony and Nintendo. I’m guessing PlayStation 5 will top on revenue while Switch will win on units, the former bolstered by a major third-party exclusive in Final Fantasy XVI and the latter affected by late Tears of the Kingdom purchases.

We’ve come to the end of May’s recap, and June’s predictions. I highly recommend Piscatella’s thread for further details and insights. Check back later for more sales and industry coverage right here.

Be safe everyone. Thanks for reading!

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

*Digital Sales Not Included

^Xbox & Nintendo Switch Digital Sales Not Included

Sources: Circana, IGN, Nintendo, Square Enix.

-Dom

Star Wars Jedi: Survivor & PlayStation 5 Blast to the Top of April 2023 Circana U.S. Games Sales Report

DomsPlaying

It’s beautiful outside here in the Tri-State. To me, that’s the perfect opportunity for everyone to enjoy another sales recap!

This time it’s April’s domestic games industry spend report from tracking firm Circana, formerly known as The NPD Group.

Last month, a solid boost from hardware and various premium game releases weren’t enough to offset lower or flat performance elsewhere. This downward movement in key areas resulted in a 5% decline for total spending.

In fact, this past April closely resembled last year’s headlines.

At that time, Lego Star Wars: The Skywalker Saga was the top-selling game. Hardware also generated growth, although overall sales dipped in the high single-digits.

This year it’s Star Wars Jedi: Survivor blasting to the top of the premium software charts. Unfortunately, every sub-section within Video Game Content except for non-mobile subscription sales exhibited declines, meaning that even with new launches, people spent less on gaming.

Just like last year, Video Game Hardware was the only category to move upward in April, bolstered by big gains from Sony’s PlayStation 5, the month’s best seller by revenue, and Nintendo Switch which led by units sold.

“It’s good to see all the new games in the Top 20,” wrote Circana’s Mat Piscatella. “But Lego Star Wars: The Skywalker Saga and Elden Ring provided a tough year ago comparison.”

There were certainly good signals, like consistency in console supply and a healthy number of AAA title launches. Still, mobile continued to struggle, Xbox is nowhere to be found plus inflationary pressure in the market remained. Folks chose other forms of entertainment, perhaps adjacent to gaming like seeing an awesome The Super Mario Bros. Movie, or simply went outside to touch grass, basking in the burgeoning springtime weather.

Historically, April was still a solid result even for overall sales. Here’s a closer look at these monthly figures and, further down, a set of predictions as the industry looks ahead to a Zelda-filled May.

United States Games Industry Sales (April 2nd – April 29th, 2023)

Referencing the above gallery, in totality, people spent $4.12 billion in games during April which is 5% less than the same month in 2022. The annual spend amount is currently trending down a modest 2%, to $17.71 billion. That’s actually a marked improvement since the first quarter as I wrote about in March, when the annual figure was trending towards 5% lower.

April was already the third month this year to experience a decline. The only exception was February due to a substantial boost from Hogwarts Legacy. Last month’s soft result was attributed to a decline in the broadest category of Content, which includes software, add-on, subscription and related spending. Essentially, while people bought more consoles, they spent less on the things they play on those devices. Peripheral spending was consistent, at least.

Focusing on the Content segment, sales dipped 6% in April to $3.6 billion. This means it made up 87% of the overall figure, compared to 88% last year. Within 2023 to date, Content sales are currently down 4%, to $15.11 billion.

Mobile contributes a major portion of Content sales, and Circana’s report said that spending trends were “relatively stable” compared to March. This doesn’t tell a whole lot. All we know is mobile is one of the sub-categories that declined year-on-year because, unfortunately, the report doesn’t get more granular. The top five earners for mobile during April were Candy Crush Saga, Roblox, Royal Match, Coin Master and Gardenscapes.

The story within premium software was new games. Titles launched in April occupied seven of the Top 15 slots on the overall chart.

Star Wars Jedi: Survivor leading April was a super impressive win for Respawn Entertainment and Electronic Arts, considering it went on sale two days before the tracking period ended. Even with that short amount of time, it’s already the 4th best-selling title of 2023. As a quick comparison, its predecessor Star Wars Jedi: Fallen Order launched in second behind only Call of Duty: Modern Warfare in November 2019 during a hectic pre-holiday rush.

April’s runner-up was Dead Island 2, another new launch. It’s a great start for the long-awaited zombie slasher from Dambuster Studios and Deep Silver, which is immediately the year’s 6th best-selling game. This domestic performance reflects its global success, as it sold over a million units within three days on market. Way back in September 2011, the original Dead Island started in 3rd.

Further down, Electronic Arts had another Top 10 finisher in April with PGA Tour at #7. Capcom’s popular Mega Man Battle Network, which surpassed 1 million units globally as the fastest-selling title in Mega Man history, ranked at #8. The latter was the month’s top-selling title on Nintendo Switch as a platform.

In a rare appearance for Microsoft’s Xbox brand, Minecraft Legends started in 11th place. Compare this position to Minecraft Dungeons, which debuted in 15th back in May 2020. These are certainly impacted by the lack of Xbox Game Pass in these kinds of charts, because it’s not realistic to break out spending for individual titles on the service.

The last of the new releases in April were Final Fantasy I-VI Bundle from Square Enix at #14 then Nintendo’s Advance Wars 1+2 Re-Boot Camp one spot down at #15. While the latter’s performance seems lackluster at first, it’s actually pretty good since Nintendo doesn’t share digital. It was the month’s 3rd best-selling title on Switch.

For the 2023 ranks to date, the main movement happened because of Star Wars Jedi: Survivor and Dead Island 2 slotting high on the list, thus pushing two PlayStation console exclusives out of the Top 10: The Last of Us Part 1 and God of War: Ragnarök.

Check out the full charts below.

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

  1. Star Wars Jedi: Survivor
  2. Dead Island 2
  3. MLB: The Show 23^
  4. Resident Evil 4
  5. Call of Duty: Modern Warfare 2
  6. Hogwarts Legacy
  7. PGA Tour 2023
  8. Mega Man Battle Network Legacy Collection
  9. FIFA 23
  10. Mario Kart 8*
  11. Minecraft Legends
  12. Elden Ring
  13. Minecraft
  14. Final Fantasy I-VI Bundle
  15. Advance Wars 1+2: Re-Boot Camp*
  16. New Super Mario Bros.*
  17. The Last of Us Part 1
  18. Pokémon Scarlet & Violet*
  19. Madden NFL 23
  20. Super Mario 3D World + Bowser’s Fury*

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

  1. Hogwarts Legacy
  2. Call of Duty: Modern Warfare 2
  3. Resident Evil 4
  4. Star Wars Jedi: Survivor
  5. MLB: The Show 23^
  6. Dead Island 2
  7. Dead Space Remake
  8. FIFA 23
  9. Madden NFL 23
  10. Elden Ring
  11. The Last of Us Part 1
  12. God of War: Ragnarök
  13. Mario Kart 8*
  14. Minecraft
  15. Pokémon Scarlet & Violet*
  16. Fire Emblem Engage*
  17. Forspoken
  18. Sonic Frontiers
  19. Octopath Traveler II
  20. NBA 2K23*

Hardware continued as the bright spot in April’s announcement, as it’s been lately due to stock being consistent and ongoing demand from potential buyers. This segment grew 7% last month to $367 million. It’s up 18% for the year to date, earning upwards of $1.82 billion.

Driving April’s bump were double-digit dollar gains for both PlayStation 5 and Nintendo Switch, as compared to the corresponding time in 2022. PlayStation 5 clearly continued its momentum from March, when it moved past PlayStation 4 sales when launch-aligned here in the States, leading the company to achieve its global annual hardware target when it reported fiscal results recently.

Importantly for this consumer report, not only are inventories present, people are consistently looking to snatch up both consoles to play aforementioned new releases and evergreen experiences alike. The $367 million of April is the best hardware spend for an April month since around the start of the pandemic in 2020, when it was $420 million.

When measured by dollars generated, PlayStation 5 was top dog for April driven by its loftier price tag. Nintendo Switch came in second place by this metric.

Flip that around if using units as the measure: Nintendo Switch sold the most units, while PlayStation 5 was runner-up. This is mainly due to the introduction of The Legend of Zelda: Tears of the Kingdom’s OLED model, which had a “very strong” start according to Piscatella.

Expanding to 2023 right now, PlayStation 5 is currently leading by both dollar sales and units moved. As it’s easy to see, Nintendo Switch is second by both of those.

What’s also clear is a distinct lack of contribution from the consistently-third-place Xbox Series X|S. While it’s partly because of Microsoft’s shift away from a hardware focus towards ecosystem and subscription, I’m slowly becoming more concerned with Xbox’s performance as compared to peers. Console sales are moving in the wrong direction, even alongside Nintendo’s long-in-the-tooth Switch.

CEO of Microsoft Gaming Phil Spencer made some rather divisive comments recently in an interview with Kinda Funny, discussing the brand’s current spot within the industry and hardware cycle. I commend Spencer for fielding questions at a tricky time for Xbox, with declining console revenue and a disastrous start for Redfall. What irked me is two-fold. He’s been singing a similar “we have to do better” tone for years, even generations, now. The trajectory isn’t great, even if there are momentary high points like Forza Horizon 5 and Hi-Fi RUSH. Then, certain quotes here have a defeatist slant which is never something people want to hear from a brand’s ambassador.

The boss man seemed almost reserved to the fact that Xbox isn’t picking up market share. Sure, there’s no silver bullet that will turn the tide. Yet lacking a consistent output of exclusive titles and not appealing to the core gamer is unacceptable. I’d love to see a media outlet dig into the underlying fundamentals of the business, hardware in particular, because supply should no longer be an issue. Its earnings reports and regional results imply consumers are balking at picking up Xboxes, which is quite concerning even if that’s the smaller portion of Microsoft’s gaming revenue.

Alright. Rant over. Back to my regularly-scheduled conclusion of April’s recap.

The final segment of Accessories was, somehow, exactly the same as last year’s monthly figure at this time: $158 million. This means it turned positive for 2023 to date, moving up 1% to $779 million.

While not as pronounced, Accessories are running somewhat parallel to how Hardware is faring. Plus, it’s feeling the impact of premium peripherals. The higher-priced PlayStation 5 DualSense Edge Wireless controller in black repeated as the monthly best-seller. The premium pad is also 2023’s top-selling accessory right now.

Similar to the past couple months since its debut, there’s no mention of Sony’s PlayStation VR2. February’s release for the device looks much more like a soft launch now, both literally and commercially, mainly because it’s currently available only via Sony’s own storefront.

Last month’s general performance was decent, even if it’s the second straight yearly decline for an April month since maxing out back in 2021. It was a good time for big hitters like Star Wars and Dead Island franchises, plus Sony and Nintendo benefited from an improving hardware environment.

Personally, I’m keeping a close eye on mobile to determine when, or if, it can bounce back to provide a net benefit to content output. Right now, the industry is mainly being supported by blockbuster launches and console availability, especially as subscription spend normalizes and matures.

Shifting focus towards May, this might be the easiest prediction segment I write all year:

It’s Nintendo’s time to shine. (Zel-duh.)

For Hardware as a category, Switch is fully set to break PlayStation 5’s currently monthly streak on dollar sales, as I expect the hybrid device to lead by both revenue and units.

The Legend of Zelda: Tears of the Kingdom will undoubtedly be May’s best-selling software, even without digital. I mean, it’s already sold 10 million units during its first weekend alone, 4 million of which was in the Americas. The only other title on a Nintendo platform to ever reach the 10 million threshold in three days was November 2022’s Pokémon Scarlet & Violet, and that’s really two games counted as one!

This means that Tears of the Kingdom is not only the biggest Zelda launch of all time, beating out its predecessor, it’s the single fastest-selling software on a Nintendo platform in the history of Nintendo platforms.

What other new launches might chart? Take-Two Interactive’s LEGO 2K Drive is an intriguing one later this week, as I see Top 10 potential on the brand recognition alone. I don’t think the aforementioned Redfall from Xbox & Bethesda has even a remote chance, and I’m pessimistic on Daedalic Entertainment’s The Lord of the Rings: Gollum as well. Most publishers smartly moved out of Nintendo’s way.

Within Accessories, the official retail launch of PlayStation VR 2 could bump up the accessories portion. Will it? I’m not sure, though I’d bet spending will at least be flat again.

All of this will lead to overall domestic spending growth in May, I’d say in the mid-single digits with upside into the teens.

“May should be fun,” Piscatella said, sharing my sentiment. “Subscription growth continues to slow. PlayStation VR2 coming to retail [is] happening not a moment too soon.”

I recommend checking out his Twitter thread for Circana’s full report. Until next time, be well everyone. Thanks for reading!

*Digital Sales Not Included

^Xbox & Nintendo Switch Digital Sales Not Included

Sources: Capcom, Circana, Kinda Funny, Nintendo.

-Dom

PlayStation 5 Q4 Unit Sales Record Drives All-Time High for Sony’s Gaming Division in 2022 With a Couple Caveats

DomsPlaying

Gamers should be happy, for once, because the PlayStation 5 has finally arrived!

At least that’s according to Sony’s 2022 annual financial results, which proved that any lingering supply issues for the newest console generation are now over.

The Japanese consumer tech giant reported earnings in Japan last week for the fiscal year ending March 2023. Within, its PlayStation division had an exceptional time as hardware inventories returned and people everywhere could buy PlayStations once again. Its Game & Network Services (G&NS) segment produced almost $27 billion in annual sales, an all-time best.

What’s the catch?

Well, a historically weak yen had an outsized impact and was responsible for a substantial portion of revenue growth. Gaming also proved less profitable because of higher development and acquisition expenses. I’ll cover that more later.

Still, that’s not to dampen what Sony is doing with its gaming hardware business emerging out of the height of pandemic times. During January to March, the PlayStation 5 had the best non-holiday quarter for a gaming console ever with 6.3 million units sold. For perspective, it had shipped 3.3 million and 3.9 million in the same quarter during 2020 and 2021, respectively.

This means Sony beat its ambitious fiscal year target of 19 million shipped, reaching 19.1 million. It also drove lifetime shipments to 38.4 million, moving past the 30.75 million for Sega Genesis and Nintendo 64’s 32.93 million.

On the content side for PlayStation, while yearly software unit sales declined, its services and engagement statistics showed progress as PlayStation Plus and Monthly Active Users (MAUs) either remained flat or gained ground.

“Distribution inventories have normalized, and we are now able to deliver PS5 to customers without waiting almost all over the world,” executives said in prepared remarks. “In addition, the positive impact of increased PS5 sell-in has begun to appear in engagement metrics, with dollar-based third-party software sales exceeding the same month of the previous fiscal year in February and March.”

Here’s a closer look at the numbers for 2022, plus a preview of the year ahead with my new predictions.

Starting with Sony overall, its Q4 revenue jumped 35% to $22.6 billion. During fiscal 2022, sales rose 16% to over $85 billion, slightly above its target. This benefited from contributions across a number of business lines, including G&NS in addition to Entertainment, Technology & Services (ET&S) and its Music segment.

On the other hand, quarterly operating profit suffered a 51% decline to $950 million. It was virtually flat for the year, at $8.92 billion, above estimate. Headwinds included currency impact alongside lower contributions from PlayStation and Sony Pictures.

Gaming is a major factor for Sony’s overall performance. Both Q4 and 2022 overall proved to be mixed, with excellent top-line growth yet a weaker profitability outcome. PlayStation revenue between January and March launched 61% higher, to an all-time Q4 record of $7.9 billion. That was over a third of Sony’s sales for the quarter. During 2022, PlayStation sales grew 33% to a record $26.9 billion.

Again, on the flip side was profitability. Fourth quarter operating profit dipped 55% to $287 million. This drove the annual figure down 28% to $1.85 billion.

There’s great top-line movement yet worsening profit tells a totally different tale. Part of the reason behind record sales was massive exchange rate impact. Over the course of 2022, currency effect was upwards of $3.1 billion. That’s 12% of the total! If backing out this portion, for illustration purposes, Sony’s annual revenue would have been virtually flat.

Profitability took a hit mainly due to higher costs associated with making blockbuster first-party games like God of War Ragnarok, which had a reported budget of at least $200 million, plus purchasing Destiny creator Bungie among other smaller studios. Sony is also investing in its services suite and cloud offerings, and rebranded its PlayStation Plus membership structure. And frankly, it costs money to supply more hardware.

A primary growth driver was, naturally, PlayStation 5 hardware shipments. As regional data came in from key markets, indicators pointed to a big quarter. I still didn’t know if it could be this massive. Sony just shipped the most PlayStations in any fiscal Q4. To put this 6.3 million in context, the biggest January to March shipment total was 3.1 million right after its launch in fiscal 2013. Last year, Sony moved a paltry 2 million.

Even more, I bet most if not all stock is selling-thru to customers. The supply and demand equation has equalized, and Sony is clearly making up for lost time.

While this is impressive stuff, the PlayStation 5 continues to lagging its predecessor, which was at 40 million shipped by the end of its third fiscal cycle. That’s currently the fastest-selling console in Sony’s history. We’ll see if PlayStation 5 catches up. (Tease: It should by next year).

This performance was reflected in its product mix, where Hardware made up 35% of the quarter’s sales after more than doubling year-over-year. Next up was 21% via Add-On Content as it benefited from spend on third-party software and downloadable expansions. Digital games comprised 16%, no doubt bolstered by a monumental launch for Warner Bros’ Hogwarts Legacy. And the Others category contributed 13%, moving up 176% since last year. This includes Sony’s games on PC, such as The Last of Us Part 1 which launched in March.

As I did during my Microsoft earnings reaction, here’s a quick rundown of where Sony’s latest annual output fits compared to peers. Tencent’s latest was nearly $26 billion, meaning that if we account for extreme exchange rate fluctuations, Sony’s $26.9 billion would be tops. Backing out that effect, Sony occupies the second spot again at $23.82 billion. This is where Microsoft’s Xbox sales sit at $15.43 billion. Activision Blizzard’s 12-month revenue was $8.14 billion, so the combined firm could be $22 billion to $23 billion, accounting for redundancies and sales overlaps. Nintendo previously produced $12.25 billion, yet the company is reporting more recent results next week.

Sony’s management also shared supplemental statistics, which give insight into the number of folks playing regularly on PlayStation, if those users actively sticking around plus how well are services being received.

To keep it simple, I’ll focus on annual figures. Intriguingly, full game software sales across the PlayStation family took a substantial hit during 2022, moving down 13% to 264.2 million. Out of that, 43.5 million were from first-party titles published by Sony itself. That number is down only marginally from last year’s 43.9 million. In fact, Sony claims that dollar sales of first-party software rose 41%, including the impact from Bungie. The bulk of the unit drop was external games.

Digital represented 67% last year, up slightly from the 66% of fiscal 2021. That means more than two-thirds of games purchased for a PlayStation platform are via download. Digital’s slice didn’t dip below 62% during any quarter over the past two years.

It appears that, for now, the refurbished PlayStation Plus service is attracting and retaining users. There were 47.4 million memberships at the end of March, the same exact figure as the prior year and up 1 million sequentially since the holiday season.

Reflecting a similar engagement theme was active users on PlayStation. MAUs, defined as the “estimated total number of unique accounts that played games or used services on the PlayStation Network during the last month of the quarter” rose from 106 million in March 2022 to 108 million now.

Thus, while software sales declined for Sony this fiscal year, just as many people are subscribing to its catalog of older titles on PlayStation Plus and even more people are active on the ecosystem, which contributed to its elevated financial results.

“The number of monthly active users for PlayStation as a whole increased 2.3 million accounts compared to the same month of the previous fiscal year in March,” management said on its conference call.

There’s two sides to Sony’s story last year, and I’ve fully delved into both. To summarize, it was one of the best years gaming has ever seen. Albeit with the caveat of revenue benefiting greatly from a weak local currency and profit facing hits from big costs. There’s macro elements like supply lines being shored up that greatly benefit, and even though people are buying less games, perhaps partially due to inflation pressure, they are playing the games they bought.

One disappointing element of Sony’s announcement was nothing much on PlayStation VR2, which launched in February. For such a major product launch to receive zero airtime is concerning, and reinforces my viewpoint that its launch isn’t moving the needle for PlayStation or virtual reality as a niche.

Looking ahead, Sony has set a rather ambitious target for its gaming division in fiscal 2023. Namely, it expects the best year ever for PlayStation hardware, even with a single system-selling title on the docket for the upcoming 12 months.

“We are planning to release a major title, Marvel’s Spider-Man 2, this fiscal year, and we aim to continue creating new IP, rolling out catalog titles for PC and strengthening live game service development.”

Starting with hardware guidance, executives anticipate shipping a staggering 25 million PlayStation 5’s between April 2023 and March 2024. That would be the single best year of PlayStation console sales in its three decade history. If this happens, lifetime PlayStation 5 sales would reach 63.4 million, thus blowing past PlayStation 4’s 60 million on a launch-aligned basis.

I believe Sony will in fact meet this mark. I’m forecasting 25 to 25.5 million in annual PlayStation 5 shipments. I don’t expect any sort of new enhanced version, despite what “insiders” claim. Sony doesn’t need one right now. Supply has caught up to demand and it will milk the current devices until there are more games available solely on this generation.

Effectively, I’m targeting calendar 2025 for a PlayStation 5 model refresh.

Unlike Sony’s overall guidance expecting lower results in fiscal 2023, the firm is upbeat on the gaming segment. It anticipates 7% higher revenue and 8% better operating profit for PlayStation, to $28.8 billion and $1.99 billion respectively. The former would be another all-time best.

Will it hit these? I’m hesitant, not because of games or hardware, mainly because of exchange rate uncertainty plus cost upside. I’m expecting a more modest rise in the low single-digits, and operating profit to be flat or down slightly.

I’m expecting a great upcoming 12 months for software on PlayStation. Marvel’s Spider-Man 2 is undoubtedly a system seller. Square Enix’s Final Fantasy XVI and Capcom’s Street Fighter 6 will attract audiences. Activision Blizzard will launch Diablo IV to critical and commercial acclaim, and will have some sort of premium Call of Duty to sell. MLB The Show is a quiet success every year. Even Ubisoft will, allegedly, launch some games.

There’s also the transmedia portion and PC sales, incorporating brands like The Last of Us and Twisted Metal, which can provide upside if costs are kept in check. The great unknown is Sony’s live services push because it’s still in the ramp-up phase, where it generates expenses long before revenues and I remain a skeptic on just how many players will obsess over ongoing games exclusive to a single platform. At least Naughty Dog should share more on The Last of Us multiplayer this year.

I’ve come to the end of another fun rundown, within what’s already been a busy season. Next up will be Nintendo next week. Thanks for hanging out. Until then, take care, and be well everyone!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥135.4.

Sources: Ariana Ruiz/Picture Alliance (Image Credit), Circana, Company Investor Relations Websites, The Guardian.

-Dom

Microsoft’s Xbox Division Posts Second Best Q3 Sales Ever & U.K. Regulator Blocks Activision Blizzard Deal

DomsPlaying1 Comment

As earnings season officially kicks off, displayed by my quarterly calendar, it’s a big week for Microsoft.

Like many things in life, there’s good and bad.

Yesterday, the Washington-based mega-corp reported its fiscal 2023 third quarter results. This proved to be quite the time for its Xbox division, achieving its second best Q3 ever behind only last year’s all-time highs.

Overall, Xbox revenue declined 4% in the latest three-month period. The Xbox Content & Services sub-segment, which include software and subscriptions, provided a welcome boost as output from hardware sales slumped in the double-digit range.

“We are rapidly executing on our ambition to be the first choice for people to play great games whenever, however, and wherever they want,” said CEO Satya Nadella on the firm’s conference call. “We set third quarter records for monthly active users and monthly active devices.”

Now, less than a day later, we have a huge update around its pending acquisition of Activision Blizzard. The United Kingdom’s Competition & Market Authority (CMA) pushed back against the proposed deal in its final report, citing competition concerns mainly in the cloud gaming space. Thus, the CMA did not approve the acquisition and has blocked it from taking place locally.

At least for now.

“We took the view that the merger would be harmful to competition,” the regulator wrote in its document available here. “And that the best way to address this would be to allow existing drivers of competition to continue to deliver for the benefit of UK consumers.”

This is a major blow to Microsoft’s shot at broadly closing the deal anytime soon, if at all, especially since it has yet to receive approval in the United States or European Union. And it’s a surprising development to me, considering the CMA recently expressed that it didn’t see concerns on the console side which is exponentially larger than the cloud market.

At the start of this year, I predicted that regulatory delays might push the deal to calendar Q4. Now, I’m on the fence as to whether it will even happen!

Understandably, Microsoft executives aid they will be appealing this decision.

Here’s a rundown of the underlying financials from Microsoft’s latest announcement showing a very good quarter for gaming. Then, read on for commentary around where I think the Activision Blizzard deal goes from here.

First let’s talk general gaming numbers. During January to March, Xbox generated $3.61 billion in revenue. That’s down 4% since the same time last year, which was a record $3.74 billion. This is only the second time Q3 Xbox revenue has surpassed $3.6 billion.

Expanding to consider the most recent 12 months, Microsoft’s gaming segment has produced $15.43 billion in sales. You’ll see this comparison over time in the graph above. Compare that to the $16.49 billion generated a year ago, and the current yearly figure is down 6%.

Even so, annualized Xbox sales have been above $15 billion for eight straight quarters.

This illustrates a few important factors impacting the top-line of Microsoft’s Xbox business. Mainly how its subscription business is proving resilient even when there aren’t many major exclusives and hardware isn’t growing.

It reflects a shift of spending for consumers coming out of the heights of coronavirus lock-downs, moving towards different purchasing decisions when it comes to entertainment. There’s also the inflation element, which continues to rear its ugly head at a macro level. Still, it’s lagging where it should be at this point in a new console cycle. If it wasn’t for Xbox Game Pass, the business would look a whole lot different.

While it’s still early in the earnings season, I like to run an annual sales comparison across industry peers whenever we get new results from the biggest players. Tencent is currently the world’s largest gaming company by sales, eclipsing upwards of $25.6 billion in fiscal 2022. Sony’s impressive $22.84 billion from PlayStation is up next, bolstered by an exceptional holiday quarter. This is where Microsoft slots in with $15.43 billion. Note Activision Blizzard reported its fiscal 2023 Q1 results today, wherein its 12-month revenue is $8.14 billion, thus the combined entity could be roughly $22 billion to $23 billion, accounting for redundancies and sales overlaps. Lastly, Nintendo saw $12.25 billion in annual sales.

As I say every time when Microsoft reports, we have limited visibility into profitability for the Xbox brand. The gaming segment is part of the More Personal Computing (MPC) business unit, which experienced a 12% decline in operating profit during Q3. This was mainly driven by 9% lower revenue, since operating expenses declined 5%. It’s impossible to know how gaming contributes, so all we have are metrics from the broader business.

I’ll now break out the performance of each underlying segment within gaming, to illustrate how each contributed to the whole.

Sales from Xbox Content & Services rose 3% in Q3, well above the company’s forecast. This equates to $3.1 billion in sales, or 86% of Xbox’s total, which is a record third quarter dollar amount passing last year’s $3 billion. On an annualized basis, sales from Xbox Content & Services reached $12.06 billion or 78% of the total. The company attributed this upward movement to Xbox Game Pass growth.

As part of this, subscription revenue reached almost $1 billion in Q3 according to Nadella. Thus, 28% of Xbox revenue right now is via Xbox Game Pass and related subscription revenue across its various devices.

Speaking of the service, management still hasn’t shared any new subscriber numbers. The last update was 25 million back in 2021. It seems like every quarter, executives say that Xbox Game Pass is growing and yet we don’t know by how much. I’m still banking that it publicly hits the 30 million mark this fiscal year.

As for other metrics of engagement, I mentioned the quote from Nadella earlier in the piece that said Xbox set Q3 records for monthly active users (MAUs) and “monthly active devices,” whatever that means, without placing actual numbers on either. For reference, last quarter Xbox attracted 120 million MAUs, so it’s probably below this number (I’d imagine he would have said otherwise).

The last random statistic provided by executives was its first party passed 500 million unique users to date. Since the inception of the Xbox brand in 2001, I assume? That’s certainly a lot, albeit inclusive of Bethesda titles which only recently came under the company’s umbrella.

Moving over to Xbox Hardware, revenue declined an astonishing 30% in the quarter ending March to around $507 million. That’s the lowest dollar amount since 1st quarter of fiscal 2021. Annual sales from Xbox’s console business are currently $3.37 billion. Compare that to $3.79 billion around Q3 last year.

This reflects what regional data was saying in recent months, as Microsoft’s peers notched wins in key markets. Management said this was due to “a prior year comparable that benefited from increased console supply.” In that case, why the heck is Sony signalling its best year for PlayStation 5 and crushing it when it comes to inventories? There’s a disconnect between the two current gen manufacturers, and I can’t tell if it’s because of Microsoft’s ideological shift away from consoles and towards services, or if its suppliers aren’t doing as well as peers?

This is one reason why it’s so hard to talk about lifetime hardware shipment comparisons this generation. I had Xbox Series X|S around 21.5 million to 22 million last quarter. Maybe it has passed 23 million by now, which I believe would be lagging even the lackluster Xbox One generation. For comparison, PlayStation 5 is at 32 million and will be even higher when Sony reports its results later this week.

Closing out the Q3 talk, Microsoft’s overall revenue rose 7% to $52.9 billion. Operating income moved up 10% to $22.4 billion. Microsoft Cloud revenue alone jumped 22% to $28.5 billion. The firm beat analyst expectations for both sales and profit.

Really, this past quarter perfectly encapsulates Microsoft’s evolved gaming strategy. Ecosystem and subscription contributing to ongoing revenue, which offsets times when console sales are lackluster or it doesn’t have a big exclusive software launch. I’ve said for years that Microsoft’s biggest exclusive is Xbox Game Pass, not any of its first party brands like Halo or Forza.

The results for Xbox’s subscription offering speak for themselves, at least at the top-line. Whether it’s sustainable over time is another question that’s hard to answer without more transparency. If my prediction of a price hike in the next year or so comes true, that’s another piece of the profitability puzzle.

Looking ahead towards the final quarter of Microsoft’s 2023 fiscal year, the firm expects gaming revenue to grow in the “mid to high single digits.” If I assume 7%, that would be $3.7 billion. Just below the all-time high of Q4 2021’s $3.71 billion.

For Xbox Content & Services, management forecasts an increase in the “low to mid teens.” Assuming it could be around 12% growth, that’s a Q4 result of $3.1 billion which would be the best Q4 for this software sub-segment to date. And while Microsoft doesn’t provide guidance for its Xbox Hardware business, I’m looking at around a 13% decline if the other numbers hold.

This fits with my expectation that 3rd party software will carry the quarter, with the likes of Star Wars Jedi: Survivor, Diablo IV (ironically from Blizzard) and Street Fighter 6 hitting market. Internal studio titles like Minecraft Legends and Redfall will contribute, though I wouldn’t dare call them blockbusters. Either way, I’m expecting Microsoft to meet these forecasts, leaning more towards a slight beat.

That brings me to my reaction to the CMA’s decision to block Microsoft’s intended purchase of Activision Blizzard in its native United Kingdom. While I’m still digesting it, and I’m far from a legal expert, the overall point remains that cloud gaming seemed to be the tipping point for the regulator, and the main reason why it thinks the deal could stymie competition.

I can almost see the CMA’s argument, as Microsoft purchasing all these properties will certainly beef up its already leading market share in cloud. Even as the company threw around 10-year licensing agreements like Oprah does cars. It’s still a ridiculous reason to block the purchase, considering it will continue to be a niche portion of the industry now and in the medium term. To me, King is the real prize of the deal with its exposure to behemoth mobile titles like Candy Crush. There seems to be an outsized focus on cloud services, which will remain a small complement to traditional and mobile gaming for many years to come.

It’s a cop out, I know, yet I’m officially undecided as to when, or even if, the deal will close. Originally I expected it by year-end. With Microsoft appealing the CMA’s decision, plus without approval yet from the United States and European Union, my prediction is this legal ordeal might drag well into 2024.

Apologies to everyone who thought the story would be over sooner than later!

What is over is my first big recap of video game earnings. Check back in the coming days for more games industry coverage, and bounce back to the calendar for a rundown of the schedule for gaming, media and tech companies. Thanks for visiting! Be well, everyone.

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

Sources: Company Investor Relations Websites, The Competition & Markets Authority (CMA).

-Dom

Earnings Calendar Apr & May 2023: Gaming, Media & Tech Companies

DomsPlaying1 Comment

Ready for a brand new season?

Nope, I’m not talking about your favorite show or streaming service offering. (Though how about that epic third episode in the final season of HBO’s Succession, huh?) It’s earnings time!

In what’s become a quarterly tradition dating back as long as the site has existed, here’s a massive calendar of earnings dates for key public companies across the games industry, media sector and technology space.

I like to say this list of 100-plus companies is the biggest and best place to keep organized during a busy time for business. Over the coming weeks, I hope it’s helpful as various companies report numbers behind their recent performance. I use it myself to stay up-to-date.

Check the above image for a rundown of the full list. There’s also a handy Google Sheets link below, meant to be an easy way to visit investor sites.

As an added bonus, read on for a preview of three major earnings results incoming this quarter. As always, I’ll be writing articles about some of these soon.

Thanks as always for visiting, and have fun!

Working Casual Earnings Calendar Apr & May 2023: Gaming, Media & Tech Companies

Sony Corp (SNE): Friday, April 28th

This is an easy one, as Sony’s PlayStation division is one of the hottest stories in all of gaming. Especially as hardware supply lines come back online in a big way. The Japanese consumer conglomerate reports 2022 results later this week, which could be excellent after a record holiday for gaming. Within this annual release, I’ll be closely monitoring hardware and engagement. Will it achieve the lofty 19 million annual PlayStation 5 unit sales figure? This is a big expectation, considering it totaled 12.8 million through the first 3 quarters. I’ve been a vocal skeptic. However, the more I’ve seen recent regional data, I’m thinking it might actually hit the estimate. Upwards of 6.2 million consoles in a three month span would be one of the best non-holiday quarters for a PlayStation. In addition to the usual PlayStation Plus and monthly active user figures, I’d like to hear anything on PlayStation VR2. If Sony is silent there on its latest virtual reality launch, that would be deafening. Overall, I’m way upbeat on PlayStation’s 2022.

Nintendo (NTDOY): Tuesday, May 9th

While we won’t quite hear about the commercial success of The Legend of Zelda: Tears of the Kingdom when Nintendo reports its latest yearly result in May, we will hear plenty about the Switch and The Super Mario Bros. Movie breaking all sorts of records. Even if the film won’t contribute to what I expect will be a solid fiscal 2023 result. By then, the Mario Bros will have etched their name into the annals of box office history by generating over $1 billion in ticket sales. (At present, it’s approaching $900 million.) On the gaming side, I want to see if Nintendo achieved its lowered 18 million annual Switch hardware unit target and where it guides for the current fiscal year, which is the hybrid console’s seventh on market. Plus, the evergreen Mario Kart 8 Deluxe will probably sell another few million units, as it often does.

Capcom (9697): Wednesday, May 10th

When Capcom REports its REsults for fiscal 2022 next month, I expect it to be REally good. Maybe even REmarkable. Why am I typing like that? Because its bread-and-butter approach of remaking mainline Resident Evil games continued through this latest year with a modern version of Resident Evil 4 launching in late March. It was the 2nd fastest-selling title in franchise history, moving 3 million units in 2 days then another million in the week or so after. Last quarter, the Japanese third party publisher said it’s on target to achieve its full-year guidance driven by digital performance, Monster Hunter Rise: Sunbreak and the aforementioned Resident Evil boost. Beyond that, I’m looking forward to forward-looking targets considering it has a busy year incoming. Street Fighter 6 hits in June and what I think can be a surprise IP in Exoprimal launches in July. The firm also has the Monster Hunter Now mobile game in September, then a live-action Street Fighter movie is in the works as well.

Sources: Company Investor Relations Websites.

-Dom

PlayStation 5 Outpaces PlayStation 4 in Circana’s March 2023 U.S. Games Industry Sales Report

DomsPlaying

Can you believe the year is a quarter over? At least it’s beautiful springtime here in the States.

Which means, most importantly of course, it’s time to spring into another monthly sales report!

Industry tracking firm Circana, formerly The NPD Group, recently published its March 2023 games industry report which tracks trends and tidbits on spending habits of domestic gamers.

Both March and the first three months showed common themes, while the PlayStation 5 hit a major milestone compared to its predecessor plus Capcom has another REmarkable hit on its hands.

Overall consumer buying on games and related categories declined 5% in March, leading to a modest 1% drop for the first quarter. Underlying this movement was weakness in mobile and certain software areas, which offset sizeable gains in the hardware segment.

Generally this indicates industry sales normalizing towards pre-pandemic levels, as consumers get back to other forms of entertainment and face certain external pressures like continued inflation. Better hardware supply is providing a much-needed boost, because those looking to buy a current generation box at retail can find one.

Circana’s monthly announcement tells a mixed story on the Content side as mobile and premium software continued downward pressure, even as new launches hit market. Within premium, Capcom’s Resident Evil 4 Remake was the month’s best seller.

On the console front, Sony’s PlayStation 5 has been on market now for 29 months. This is worth mentioning because it’s (finally) outpaced 2013’s PlayStation 4 on a launch-aligned basis. Until now, the recent cycle was lagging its predecessor. In fact, PlayStation 5 also set a new March unit sales record for the brand, a month after it did the same for a February month, implying that Sony might be able to meet its lofty goals towards this the end of its fiscal year.

“PlayStation 5 lifted hardware spending in March,” said Circana’s Mat Piscatella on Twitter. “However this growth was offset by a decline in content spending, where increases in non-mobile subscription as well as digital add-on console content were offset by lower spend across premium games, PC add-on content and mobile.”

Scroll down for more reactions to the commercial standing of the U.S. games industry in Q1.

United States Games Industry Sales (February 26th – April 1st, 2023)

During the last month, total games industry spending moved down 5% to $4.63 billion. This means the first quarter equaled $13.58 billion, down 1% to date.

The largest contributor of Video Game Content made $3.83 billion in March, a decline of 7% as it comprised 83% of the overall figure. In the same month last year, it made up 85% mainly because of softness in hardware at the time. Q1 purchasing on Content this year lowered 4% to $11.51 billion, whereas in 2022 it reached $12 billion by now.

Mobile was a driving force, moving down yet again in March albeit it’s unclear to what extent as Circana doesn’t share specifics. The report still claims mobile spend was “strong” during March, led by the casual sub-category having its best month since a year ago, outpacing even the holiday period. Top mobile earners last month were Candy Crush Saga, Roblox, Royal Match, Coin Master and Pokémon Go.

Circana said premium software also exhibited a year-on-year decline in March, despite a handful of higher profile releases. Keep in mind last year was the first full month of Elden Ring sales, a title which proved to be a bellwether throughout the first quarter and beyond, plus featured launches in the Gran Turismo and Kirby franchises.

The reanimated Resident Evil 4 Remake won March by revenue, making it the 3rd best-selling game of the entire quarter with only a week of sales in consideration. As compared to earlier titles, Resident Evil Village also topped its debut month of May 2021 while Resident Evil 3 Remake started in 6th during April 2020.

This is an impressive beginning for the beloved Resident Evil 4 Remake that parallels its global success, whereby it’s the second fastest-selling franchise game behind only Resident Evil 6 in 2012. Resident Evil 4 Remake moved 3 million copies in its first two days, and has since sold over a million more.

Beneath Hogwarts Legacy at #2 was the next new release in MLB The Show 23, which scored a third place start. The past couple incarnations of Sony San Diego’s multi-platform baseball sim have performed in this range during their debut months, hitting 4th and 1st in 2022 and 2021, respectively. This year’s title is already the 4th best-seller of 2023, made even more impressive by the fact that it only counts digital on select platforms.

The final new title on March’s list was WWE 2K23 at #7. This was a great result for Take-Two’s latest wrestling game, notably because the publisher doesn’t share its download portion. All of this is from physical sales. Its predecessor entered the arena in the same spot in March 2022 after the storied series took a much-needed year off.

Otherwise, last month’s premium ranks were occupied by titles launched in earlier periods. Major movers included Metroid Prime Remastered jumping from #21 to #13 and Lego Star Wars: The Skywalker Saga launching up to 20th from down in 41st.

Across the first three months of 2023, Hogwarts Legacy was the top-selling title followed by Call of Duty: Modern Warfare 2. The two new entries in March bumped Dead Space Remake a bit to 5th. Further down, Octopath Traveler II was probably the most notable, moving from outside the Top 20 into the 17th slot.

Here’s the full rundown of premium software sellers for March and the first quarter.

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

  1. Resident Evil 4 Remake
  2. Hogwarts Legacy
  3. MLB: The Show 23^
  4. Call of Duty: Modern Warfare 2
  5. The Last of Us Part 1
  6. FIFA 23
  7. WWE 2K23*
  8. Elden Ring
  9. Madden NFL 23
  10. Mario Kart 8*
  11. Minecraft
  12. Octopath Traveler II
  13. Metroid Prime Remastered*
  14. Pokémon Scarlet & Violet*
  15. God of War: Ragnarök
  16. Kirby’s Return to Dreamland*
  17. Dead Space Remake
  18. NBA 2K23*
  19. Sonic Frontiers
  20. LEGO Star Wars: The Skywalker Saga

Top-Selling Games of Q1 2023, U.S., All Platforms (Physical & Digital Dollar Sales):

  1. Hogwarts Legacy
  2. Call of Duty: Modern Warfare 2
  3. Resident Evil 4 Remake
  4. MLB The Show 23^
  5. Dead Space Remake
  6. Madden NFL 23
  7. FIFA 23
  8. Elden Ring
  9. The Last of Us Part 1
  10. God of War: Ragnarök
  11. Mario Kart 8*
  12. Pokémon Scarlet & Violet*
  13. Fire Emblem Engage*
  14. Minecraft
  15. Forspoken
  16. Sonic Frontiers
  17. Octopath Traveler II
  18. NBA 2K23*
  19. Monster Hunter Rise
  20. One Piece Odyssey

Sales within the Video Game Hardware category moved up 10% in the U.S. last month, settling at $566 million, which proved to be a substantial figure in a historical context.

“This is the second highest video game hardware spend for a March month in U.S. history, trailing only the $680 million reached in March 2021,” noted Piscatella.

That sort of near historic momentum drove Q1 sales upwards 21% to $1.5 billion. For comparison, its contribution was $1.2 billion between January and March 2022.

This signals not just a healthy supply of consoles in market, but a better-than-expected amount coming off a challenging 2022. I’ve written about how I was skeptical of Sony’s bullishness on its console business even now that supply lines are shored up. I’m beginning to think executives were onto something.

Why? In addition to PlayStation 5 now selling faster than PlayStation 4 domestically, it also set a new unit sales record last month for the PlayStation brand during a March month. Looking back historically, PlayStation Plus moved 620K units around its first month in 2005. The latest box from Sony outsold this number.

Naturally, PlayStation 5 was the best-selling console of March by both units and revenue as it gained ground compared to last year. It’s unclear if we’re looking at a record first quarter of unit sales after both February and March were both all-time PlayStation records. All Circana did was call year-on-year growth in Q1 “significant.”

Something else that’s significant, even if less so, was how Xbox Series X|S again secured second place during March as measured by dollar sales. This is the second month in a row where Microsoft’s latest console family has outpaced Nintendo on revenue. Still, Nintendo Switch continues to move off shelves in its seventh year as the runner-up during March by unit sales.

Similar to March itself, when considering the first quarter, Switch secured second place on units. Xbox Series X|S is runner-up right now on dollars. Circana tells me that the difference between the two platforms vying for second place is “very close.” Basically, it’s anyone’s game!

Rounding out the spending categories was Video Game Accessories, which didn’t move much in March or Q1 in either direction. Purchasing rose 1% last month to $239 million, making the year-to-date essentially flat at $617 million.

Game pads boosted March’s result, earning more than any other sub-segment in Accessories. Sony’s PlayStation 5 DualSense Edge Wireless controller in black was the month’s top-seller, benefiting from that premium price point.

As for the year-to-date best-seller, I have a question out to Circana to see if they might be able to share it. I’d imagine it’s one of the PlayStation 5 DualSense models, based on how well the corresponding console is doing lately.

Separately, fitting with the broader narrative of a slower start for PlayStation VR2, I asked Circana specifically if they could share anything about the headset’s performance or how it compares to the first iteration back in 2016. They weren’t able to comment. Seeing this segment where it is means that I don’t think virtual reality is moving the needle, even during the first full month of sales for a premier product launch from one of the industry’s biggest players.

While somewhat disappointing, it matches my expectation that virtual reality has niche appeal, both in the past and future, until the technology catches up with where it needs to be and headsets can be standalone. There’s also the high barrier to entry on cost for something that requires a console connection.

While domestic industry sales trended downward during both March and the first quarter, there are plenty of bright spots including hardware, big budget title sales and even accessories moving in a good direction. PlayStation 5 hitting a couple major milestones is reassuring, given where supply has been for most of this generation.

“Engagement is returning to pre-pandemic levels, but spending is holding significantly above,” noted Piscatella.

Mobile is still the unknown, showing weakness for a while now, and Xbox Series X|S continues to lag where it should be against its biggest peer. Perhaps Microsoft isn’t as concerned. Circana did specifically say that subscription spending, like that on Xbox Game Pass, is still growing at this phase, although slower than it has in recent years because of cycle maturation.

I’ll now cover the first month of the new quarter before I go. April is a curious month, continuing with blockbuster releases on the premium side. Plenty of which will help with console demand.

I’m anticipating overall spending to be flat year-on-year, with upside depending on if console inventory holds up and where mobile goes.

Within Content, I’m expecting a massive debut from Star Wars Jedi: Survivor. However, there’s a caveat. The latest from Respawn Entertainment and Electronic Arts launches on April 28th, the day before the April tracking period ends. Even so, I’m betting it’s the month’s best-seller.

Dead Island 2 releases later this week, and it’s a curious one in this context. I can see a Top 10 start, though not a Top 5. EA Sports PGA Tour can be a quiet seller, with Top 15 potential. Minecraft Legends will absolutely have its audience on brand alone, yet I’m not expecting a high chart position because a number of fans will access it via Xbox Game Pass and strategy is more of a focused genre. Lastly, Horizon Forbidden West has its Burning Shores expansion out, so that should reappear in a solid position.

For the console space, it’s impossible to bet against Sony right now. At least until Nintendo’s next Zelda game in May. Expect another win for the PlayStation 5 in April.

Thus officially ends the first quarter, a fun one at that. I greatly appreciate everyone visiting the site. Check out Piscatella’s social media post for further details directly from Circana. Be well, all!

*Digital Sales Not Included

^Xbox & Nintendo Switch Digital Sales Not Included

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

Sources: Bloomberg, Capcom, Circana.

-Dom

Hogwarts Legacy & PlayStation 5 Unit Sales Record Boost U.S. Games Sales Growth in February 2023 Circana Report

DomsPlaying

It’s the season to Spring into a new video game sales report.

Yup, the jokes really bloom around these parts and can blossom into something special.

Anyways, I’m here to cover the latest U.S. games industry spending report. For a bit of background, industry tracking firm The NPD Group merged with Information Resources, Inc (IRI) last year. Now, the two firms have rebranded into: Circana.

Fun new name, same sales data!

Within this announcement, Circana shared that consumer spending here in the States is back to growth after a lackluster January. In fact, February’s 6% growth rate was the best result since October 2021’s 13% increase amidst certain macro elements easing and console inventories returning to retail.

Total monthly spend reached $4.6 billion, boosted mainly by the massive launch of Hogwarts Legacy and ongoing PlayStation 5 stock meeting its consistent demand. All three primary categories of Content, Hardware and Accessories showed gains last month, the latter two in double-digit territory.

For Content, while mobile spending continued to lag, the premium side proved healthy especially as it relates to new releases. There were seven new launches among the Top 20 best-sellers, including four within the Top 10. Earning the top spot was Hogwarts Legacy, published by Warner Bros.

Note: Harry Potter author J.K. Rowling wasn’t directly involved in making Hogwarts Legacy, though she undoubtedly benefits from it financially. I want to make it utterly clear that trans rights are human rights, and I think her transphobic comments are despicable.

PlayStation 5 continued to drive an upward trajectory within the Hardware segment, which saw spending jump nearly 70% in February. Sony’s latest was the best-selling console by both units and revenue. Even further, it sold more units last month than any prior individual PlayStation platform. Previously, the PlayStation 2 held this record back in 2005.

“The February results, and really those going back to October of last year, show a stabilization of trends, both in purchasing and engagement,” said Circana’s Mat Piscatella on Twitter. “We’re well into the ‘new normal’ and are no longer subject, for now, to the wild swings we’d seen in the market starting in March 2020.”

Here’s a deeper dive into the data incoming!

United States Games Industry Sales (January 29th – February 25th, 2023)

Consumers in the U.S. spent upwards of $4.6 billion on gaming last month, 6% higher than this time last year. That means year-to-date is trending up almost 1% to $8.95 billion.

Slowness in mobile was offset by digital strength on both console and PC, plus subscription spending on non-mobile platforms went up. Alongside this, the launch of Sony’s PlayStation VR2 led to higher sales within peripherals, even if there’s limited detail on its actual impact.

Digging into the report, Content category spending in February rose 1% to $3.89 billion, making up 85% of the broader total. Last year, it contributed 88%. This means for 2023 right now, spending is down a modest 2% to $7.68 billion.

Circana didn’t share much in the way of specifics on mobile, other than to highlight that it declined during the month. According to data partner Sensor Tower, the best performing mobile titles were Candy Crush Saga, Roblox, Royal Match, Pokémon Go and Coin Master. In particular, Pokémon Go had a resurgence, seeing in-game spend up 23% compared to January, indicating a 10% increase year-on-year, as it reentered the Top 5 biggest monthly earners.

Within premium software, the aforementioned Hogwarts Legacy concocted a recipe for success, outselling all other titles during its debut month thus securing the top spot of 2023 so far. The ever-present Call of Duty: Modern Warfare 2 and Dead Space, January’s winner, rounded out the Top 3 respectively. After a couple sports titles in Madden NFL 23 and FIFA 23, The Last of Us Part 1 moved back into Top 10 at #6 on the back of the hugely popular HBO show.

Rounding out the Top 10 were three more new releases. Wild Hearts started in 8th, which means Electronic Arts published four of the eight best-selling titles in February. Next up were two Japanese titles in Sega’s Like a Dragon: Ishin! and Square Enix’s Octopath Traveler II finishing up the Top 10. As a comparison for the latter, Octopath Traveler was the best-selling title of July 2018. In fairness, the sequel had only a couple days of tracking last month, however it also launched on more platforms than strictly Nintendo Switch.

Moving down the list to look at other new games, Kirby’s Return to Dream Land started at #15. The Kirby brand has seen a nice boost from the Switch effect this generation, as last year’s Kirby and the Forgotten Land was the fastest-selling game in franchise history. We’ll know more about its performance during Nintendo’s upcoming results.

Company of Heroes 3 debuted at #16. That’s a solid showing from the latest mainline entry in the real time strategy series, as Company of Heroes 2 didn’t chart back in 2013. This also means that Sega had three games among the best-sellers ranks in February. Finally, Theatrhythm Final Bar Line landed right at #20, the second game from Square Enix on the list.

It’s way early in the year, so the annual ranks look a lot like February’s. Hogwarts Legacy entering the list at #1 is the headliner, of course. Sony’s The Last of Us Part 1 bumps up into the Top 10, at #9. Electronic Arts still has three titles within the Top 5, and also boasts Need for Speed: Unbound at #18 and Wild Hearts sneaking in at #20.

Check below for a complete rundown of recent best-sellers.

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

  1. Hogwarts Legacy
  2. Call of Duty: Modern Warfare 2
  3. Dead Space Remake
  4. Madden NFL 23
  5. FIFA 23
  6. The Last of Us Part 1
  7. Elden Ring
  8. Wild Hearts
  9. Like a Dragon: Ishin!
  10. Octopath Traveler II
  11. God of War: Ragnarök
  12. Minecraft
  13. Mario Kart 8*
  14. Pokémon Scarlet & Violet*
  15. Kirby’s Return to Dream Land*
  16. Company of Heroes 3
  17. Sonic Frontiers
  18. The Last of Us Part 2
  19. NBA 2K23*
  20. Theatrhythm Final Bar Line

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

  1. Hogwarts Legacy
  2. Call of Duty: Modern Warfare 2
  3. Dead Space Remake
  4. Madden NFL 23
  5. FIFA 23
  6. Elden Ring
  7. Fire Emblem Engage*
  8. God of War: Ragnarök
  9. The Last of Us Part 1
  10. Forspoken
  11. Pokémon Scarlet & Violet*
  12. Minecraft
  13. Mario Kart 8*
  14. One Piece Odyssey
  15. Sonic Frontiers
  16. Monster Hunter: Rise
  17. NBA 2K23*
  18. Need for Speed: Unbound
  19. Marvel’s Spider-Man: Miles Morales
  20. Wild Hearts

Last month, domestic Hardware segment sales jumped a staggering 68% to nearly $500 million. After January’s resilience, it’s returned to growth amidst continued supply improvements and people’s general interest in buying consoles. A major third-party software launch in Hogwarts Legacy didn’t hurt, either.

In fact, Circana pointed out the latest monthly result was the highest hardware spend during a February month in well over a decade. Last month’s $495 million figure was the best since 2009, back when it reached $534 million.

Expanding to the current yearly number, console spend is trending 29% higher to $888 million.

Leading the charge here is Sony’s latest generation of PlayStation 5 devices. This family repeated its win from January, indicating the company’s supply lines are shored up and retail boxes are available for folks to purchase as desired. In fact, PlayStation 5 unit sales last month set a record February level compared to all other individual PlayStation platforms in history. Better availability alongside pent-up demand and tent-pole AAA title was the perfect storm for a record month.

While Circana doesn’t share exact unit sales, we can estimate based on historical data. Using older data from The NPD Group results back during February 2005, PlayStation 2 unit sales domestically were roughly 533K at the time. PlayStation 5’s output last month must have been even higher for it to set a record. Over half a million sold in a single, non-holiday month!

What about something non-PlayStation? Such as Nintendo Switch? Or Xbox Series X|S?

Well then, Switch was second in February on unit sales while Xbox Series X|S generated the second most dollars. As for 2023, Nintendo Switch was second on dollars generated while Xbox Series X|S slots in third by that metric.

Accessories was the other segment that rose double-digits in February, moving up 13% to $212 million. It’s now essentially flat for the year, down 1% to $377 million in aggregate across the first two months.

Circana attributed the monthly gain to a greater contribution from virtual reality headsets, which offset lower controller buying. The main reason for that was, clearly, the launch of PlayStation VR2. To what extent is unclear, because Sony hasn’t shared results on its new product and this report isn’t specific on how it compares to its predecessor or peers. It’s hard to say where indicators point when there aren’t any.

Update: I’ve chatted with Piscatella from Circana. He confirmed the best-selling accessory of February was Sony’s DualSense Midnight Black wireless controller. Additionally, Sony also secured second place with its DualSense Gray Camo game pad iteration. I have my eye on future releases to get a sense of how PlayStation’s premium DualSense Edge version fares.

February’s showing for U.S. spending was a solid recovery from January, and the best year-on-year growth in around 18 months. It helped to have an uber-popular franchise like Harry Potter launch, not to mention how people can actually find consoles to buy which led to PlayStation 5 setting a new February unit sales high within the brand’s history.

There’s also the general impact from easing inflation, allowing consumers to spend a bit more on entertainment. Having console supply or major games on market is great; there’s also the buying power and ongoing demand side of the equation.

“Improved PS5 supply has certainly helped, as have strong sales performances across both new releases and catalog titles,” noted Piscatella. “Some areas are still in the process of normalizing such as mobile, and we’re still seeing delays that might not have happened in other times.”

Looking ahead to March, it’s already almost the end of another quarter! Note the Circana sales report tracks from February 26th to April 1st.

I’m upbeat, especially for the likes of new releases, software holdovers from February and PlayStation hardware. Mobile remains iffy. Even considering last year when March had the bulk of Elden Ring sales, this year there’s the equally impressive Hogwarts Legacy, which I expect might repeat as the month’s top-seller.

The other AAA title that will compete for March’s prime position is Resident Evil 4 Remake, which shipped 3 million units during its first two days according to Capcom. It will be among the Top 3, and I’m Leoning towards predicting it will win.

Then there’s additional bigger budget releases that will chart, including MLB The Show 23, Wo Long: Fallen Dynasty and WWE 2K23. I’m expecting a great opening day (and month) from MLB The Show in particular, and there’s upside to WWE 2K after last year’s return to form.

On the hardware front, it’s difficult to bet against the PlayStation 5 right now. So I won’t, at least not until May when The Legend of Zelda: Tears of the Kingdom hits Switch. Speaking of, have you seen that footage? Wow!

In general for the upcoming March monthly announcement, I see spending up slightly since last year, with hardware showcasing a double-digit bump. Content will be closer to flat, depending on how mobile goes.

In the meantime, I recommend checking out Piscatella’s thread on Twitter (even though he doesn’t like us dark mode users!) for more details on February’s results. Feel free to drop a line here or on social media with any questions or comments. Thanks for visiting! Be safe, all.

*Digital Sales Not Included

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

Sources: Capcom, Circana, Nintendo, Warner Bros.

-Dom

Nintendo 2023 Q3 Report Shows Switch Lifetime Sales Passing 122M to Become 3rd Best-Selling Gaming Hardware Ever

DomsPlaying

It’s time for the last holiday recap of the big three gaming console makers, as I’ve previously covered a shaky quarter for Microsoft and Sony’s record-setting result.

Nintendo posted its third quarter fiscal 2023 announcement in Japan today. The company’s still exhibiting strength when compared to most recent years, though exercising caution going forward into the same tricky macroeconomic environment that many consumer tech firms are facing.

While hardware shipments are slowing as Switch moves towards its sixth birthday next month, the hybrid reached a new milestone this quarter and passed the sales of two legendary devices in the process.

The company shipped 8.25 million Switch units in the three months ending December, now achieving 122.55 million across its lifetime. That moves it above Sony’s PlayStation 4 and Nintendo’s own Game Boy/Game Boy Color which reached 117.2 million and 118.69 million, respectively.

It’s now behind only PlayStation 2 and Nintendo’s DS handheld line on the all-time list, making it the 3rd best-selling gaming hardware to date. It’s technically 2nd on both home console and portable lists if breaking them out individually. I don’t remember anyone saying this would happen when it launched back in 2017. I was among the most upbeat on its prospects. This is the type of monumental run that’s near impossible to predict.

Also contributing to Nintendo’s solid quarter was the historic launch of Pokémon Scarlet & Violet. After shipping an unreal 10 million units during its first three days on market, it’s now crossed another milestone at 20.61 million shipped between its November start and year-end.

Not only is this the fastest-selling Pokémon release ever, it has better initial sales than any game ever released on a dedicated Nintendo device. This monstrous start makes it already seventh place on the Switch best-sellers list, outpacing huge catalog titles like Super Mario Party and Ring Fit Adventure.

“For the months of October through December 2022 which encompass the holiday season, the effects of shortages of semiconductors and other components was largely resolved, and shipments generally went according to plan,” management said in prepared remarks. “However, unit sales were down compared to the same period last year, when Nintendo Switch – OLED Model was released.”

“Shipment volumes for software generally went according to plan. The release of new titles including Pokémon Scarlet and Pokémon Violet contributed to unit sales, but overall software unit sales declined year-on-year, affected to an extent by the decline in hardware sales.”

Even with generally softer hardware output, Nintendo’s top-line is proving resilient when scanning the past decade. Especially considering the sort of inflationary pressures facing consumers and a lineup lacking major titles outside of Pokémon. I’ll now move into the underlying numbers, then a look ahead to guidance and predictions for the months ahead.

I pulled the above gallery of slides from Nintendo’s Q3 report, where it showcases 9-month performance in the period ending December. I’ll back into the quarterly figures, then illustrate trends over a longer period of time as well.

Revenue for the three months ending December 2022 came in at $4.68 billion, down 8% since last holiday. Operating profit experienced a more precipitous dip, moving down 25% to $1.39 billion. Two of my charts in the next section map out movement over time.

Taking this into account, sales for the fiscal year to date have declined a modest 2% to $9.5 billion. Income from operations is trending down 13%, to $3 billion.

Executives said sales dipped slightly despite the yen’s depreciation, primarily because of semiconductor shortages in the earlier quarters and component parts impacting hardware supply. Still, that top-line figure is more resilient than expected, achieving the second best Q3 sales since back in fiscal 2010. Even quarterly operating profit is the third best since that same year, despite the recent double-digit decline. Demand for a spanking new Pokémon generation certainly helped.

I’ll now dig into the current product category mix that impacted last quarter. Leading the charge was Hardware, at nearly 51% of the split. Compare that to 54% this time last year, when Nintendo was shipping more units to retailers. This means software moved from 46% during last year’s December quarter to 49% now, bolstered by the proportion from first-party being 85% of the total. From a geographic standpoint, Americas is 43%, the same as last year. Nearly 25% of Nintendo’s sales came from Europe, down from 27%. Japan made up most of the difference, contributing 24% versus last year’s 21%.

Expanding to see how the latest quarter affects annual sales, check out the second set of charts in the next gallery. Nintendo’s annual sales are currently trending towards $12.25 billion, effectively flat year-on-year. It’s been hovering around a similar value since mid-fiscal 2021. Which proves that, even with a down quarter, annual revenue has been consistent. On the other hand, annualized operating profit dipped to its lowest level in ten quarters, at $3.9 billion. Higher expenses and the yen’s movement are its biggest headwinds.

Similar to recent articles, I’ll list a quick comparison to industry peers. Tencent is the world’s biggest gaming company by sales, currently at $25.8 billion. PlayStation’s record holiday led to $22.84 billion in annualized revenue, its best to date. Microsoft ranks next at $15.56 billion, though could be upwards of $19 billion to $20 billion if it acquires Activision Blizzard this year. That’s based on the latter’s $7.53 billion annual figure reported yesterday, accounting for overlap and redundancies. Nintendo slots here at $12.25 billion, noticeably hamstrung by recent exchange rate shifts. However, Nintendo is currently more profitable than Sony’s PlayStation division when using the latest 12 months, earning $3.9 billion compared to $2.11 billion. Likely due to the cost of producing more PlayStation 5’s and developing AAA titles like God of War Ragnarök.

On the hardware front, this segment continues to cool. Although Switch is showing its age from both a commercial and spec standpoint, it’s still not quite near the end of its life just yet. Nintendo is committed to this device, and is still planning out its transition to the next one.

Unit shipments for Switch during the three months ending December totaled 8.25 million, compared to 10.67 million last holiday, or 23% lower. That brought the current 9-month total for this fiscal year to 14.91 million. At this same point in fiscal 2022, the figure was 18.95 million which implies a 21% decline. Interestingly, that’s the same percentage decline between 2021 and 2022.

Out of the units shipped through Q3 this year, 5.22 million were base model Switch. That’s down a whopping 56%, mainly because of the shift towards the OLED model being the standard version. The OLED model shipped 7.69 million in the last 9 months, nearly double the 3.99 million of its debut year since it started in October 2021. As for the Lite counterpart, sales through the third quarter declined 37% to 2 million units.

Referencing the aforementioned lifetime figure of 122.55 million, it’s approaching all-time best-selling gaming console territory. Can Switch really become the top seller? Well, it would have to beat out two devices in order to earn the crown. Which is a tall order.

After launching in 2004, Nintendo DS ended its life years later as the best-selling handheld device ever, achieving 154.02 million in sales. Almost two decades later, no portable has even come close. Then, the all-time leader right now is Sony’s PlayStation 2, which hit stores in 2000 and skyrocketed to 159 million throughout its tenure. Thus, Nintendo has to ship between 31.47 million and 32.45 million more Switch to reach these heights. If Switch’s successor launches in Late 2024 or Early 2025, that leaves seven to eight quarters for this to happen. An average of 4 to 4.5 million per quarter. While I do think it’s probably attainable, I don’t think I’d bet on it.

Shifting back to this recent report, Nintendo shared insight into numbers around Switch sell-thru to consumers. (Until now in this article, I’ve been talking about units shipped to retailers.) Executives say that people continue to have a “diversification of motives” for purchase, which includes first-time buyers or upgrades to OLED. Even so, sell-thru declined compared to last year, as it did in 2022 as well since it’s been trending downward after peaking during quarantine days.

It stands to reason that, while there’s still an appeal to grab a Switch especially at a retailer discount, fewer people are doing so which signals a nearly saturated market. Combine that with inventory difficulties and a lower average selling price, and we’re seeing a natural downswing in units produced plus revenue generated.

Software shipment data held stronger than hardware for Nintendo, mainly because of just how much demand there was for Pokémon and certain legacy titles reached new sales thresholds.

During the quarter, Switch software sales totaled 76.71 million. Compare that to 85.41 million units last year, thus a 10% decline. Across the three quarters ending December, software units were 172.11 million, down 4% against last year’s 179.29 million.

Software sales over Switch’s lifetime are drawing toward an incredible milestone. Last quarter, overall Switch software was at 917.59 million. Now, it’s 994.3 million. Nearly one billion games sold for the device since 2017! It’s likely cleared that by now, and we’ll know by exactly how much when the company reports next quarter.

During the latest 9-month period, the hybrid featured 27 titles that have sold a million units or more within that time period. Out of that, 19 were published by Nintendo. The remainder were third-party titles. Over the same length of time in fiscal 2022, the amount was 29 in total, 22 of which were Nintendo. Quality software remains the major appeal for Switch, even if existing users are purchasing them as opposed to new console owners.

November’s Pokémon Scarlet & Violet drove today’s results, as mentioned. It’s sold-thru 18.2 million copies to consumers over seven weeks. As if it wasn’t clear how ridiculous its start was, this stat will really put it into perspective: After mere weeks on sale, these are already the fourth best-selling titles ever in the franchise. That’s across all releases since Pokémon Red & Blue kicked things off in the mid-90s! I expect by the end of Switch’s time, it could be the best-selling Pokémon to date. We’re talking one of the biggest entertainment franchises in history! Truly unreal.

Bayonetta 3 hit stores in October as the other new release, and it’s officially a million seller. Developed in conjunction with Platinum Games, the action title started at a hair over 1 million, reaching 1.04 million during the period. That’s equivalent to lifetime sales of its predecessor’s port onto Switch, which hit the platform in February 2018.

Beyond the brand new games, Nintendo provided updates to those launched in earlier quarters during fiscal 2023. Splatoon 3, which splattered series records with its 7.9 million unit start back in September, has since passed the 10 million milestone, settling at 10.13 million. June’s Nintendo Switch Sports sold-in an additional 2.46 million units in the holiday months, scoring 8.61 million to date.

Additionally, the best-selling racing game ever in Mario Kart 8 Deluxe sped past yet another mile marker this quarter. This time it’s the 50 million mark! Shipping 3.59 million units in Q3, it’s now at exactly 52 million lifetime. Two other high sellers achieved new milestones as Super Smash Bros. Ultimate smashed 30 million and Super Mario Odyssey jumped past 25 million, to 30.44 million and 25.12 million respectively.

Beyond software sales numbers, Nintendo tends to give tidbits around engagement and user base statistics. Back in September, Nintendo Switch Online reached 36 million paid members. I’ll update this section if the company shares an updated figure. Otherwise, the “statistic” of Annual Playing Users, which measures the number of accounts that have opened a single Switch game over the past 12 months, rose to an all-time high of 112 million in December. It was 106 million in Q2. So, the vast majority of Switch owners still use it at least once a year. Shocking revelation!

Despite the outlined financial and unit sales reductions, Nintendo had quite an impressive third quarter as compared to recent years. Especially for revenue. Nintendo Switch beat out two iconic gaming device families for lifetime sales and Pokémon Scarlet & Violet had a frankly ridiculous performance. No doubt there are signals that parts of its business are coming down off recent highs, yet Nintendo has the sort of quality software lineup to soften the blows of hardware slowdowns.

Moving into the final quarter of its fiscal 2023 period, management shared updated guidance in today’s announcement. This is where a bit of nervousness creeps in, yet I’m not as concerned for the overall health of Nintendo’s trajectory. Especially given where it was during the dire straits of the Wii U years, this looks almost as rosy as ever.

Intriguingly, just after raising financial targets last quarter, executives reverted back to lower estimates this period. They adjusted their revenue forecast down 3% to $11.73 billion, implying a 6% decline since last fiscal year. Similarly, operating profit guidance was revised downward 4% to $3.52 billion. Even so, these updated figures would be the third best annual results since fiscal 2010.

Then for the second quarter in a row, Nintendo reduced annual Switch shipment guidance. Management now anticipates 18 million shipments, down 5% from Q2’s 19 million. That means the firm has to produce 3.09 million between January and March to end the fiscal period. Personally, I think it’s now a bit too conservative. My bet is it beats the target, moving upwards of 19 to 19.5 million, which is slightly below my target from three months ago.

Along the same lines, Nintendo lowered its annual software estimate 5 million units, or 2%, to 205 million. This is where I’m more skeptical, mainly because of a light slate in the three months ending March. A good portion of the 32.89 million needed this quarter to achieve that target has to be follow-on sales of things like Pokémon and Mario Kart. New releases that will also drive this include Fire Emblem Engage, which launched a couple weeks back, Kirby’s Return to Dream Land Deluxe later this month then March’s Bayonetta Origins: Cereza and the Lost Demon. These aren’t chart-toppers or anything.

One lingering question of course is might Advance Wars 1+2: Re-Boot Camp launch in the coming months? While Nintendo still has it as TBA in its reporting, alongside the likes of Metroid Prime 4, there’s speculation recently based on retailers that it could hit market soon, which could bump up software results. I remain cautious, the same way I’m thinking Nintendo will narrowly miss its latest annual software sales guidance.

“Sell-in of hardware units during the third quarter was generally in line with expectations,” management said. “However, hardware sell-through during the holiday season did not perform as expected, and therefore the unit sales forecast for the fourth quarter has been modified. The software unit sales forecast has been modified as well, largely due to taking into consideration the modification of the hardware unit sales forecast.”

Near the beginning of next fiscal year, May’s The Legend of Zelda: Tears of the Kingdom is clearly the biggest launch for Nintendo in quite some time. It will be a massive success and compete for best-selling premium title of the year globally and in areas like Japan, though perhaps not domestically on The NPD Group’s lists since Nintendo doesn’t share digital sales here.

In an exceptional bit of news that bucks the industry trend lately, as many firms are laying off workers, Nintendo plans to raise employee salaries by 10% for those that work in Japan. Reuters reports this decision by management as inflation grips the local economy. While it will certainly increase costs, it’s the right way to maintain talent that drives its best-in-class output.

To showcase that output, the company is hosting its first Nintendo Direct of 2023 tomorrow. The 40-minute long presentation will primarily focus on Switch titles launching in the first half of the calendar year. I’m looking forward to seeing what’s there for Zelda, which ports Nintendo announces and any indication of future first-party announcements in what might very well be the final year of Switch.

Time flies!

Speaking of having fun, thus ends my latest big results recap of the season. What is your initial reaction to Nintendo’s results? Have you bought a Switch and contributed to that lifetime total? Will it reach that annual target? Are you betting it will be the best-selling console of all time eventually?

For now, feel free to leave a comment or hit me up on social media. Remember my earnings calendar thread for companies reporting this quarter across gaming, technology and media. Thanks as always for reading! All the best.

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥136.39.

Sources: Company Investor Relations Websites, NBC News (Image Credit), Reuters.

-Dom

PlayStation Achieves Record Holiday Sales & Profit in 2022 Q3 & Raises PS5 Annual Hardware Target

DomsPlaying2 Comments

What a quarter for PlayStation. Talk about bucking the trend!

I’ve been writing recently how this past holiday will be a mixed bag for many consumer technology firms, including gaming hardware manufacturers and software publishers. Sony is both of these things, and management is masterfully navigating the murky waters of our economic environment.

This fact is clearly illustrated when it reported third quarter fiscal 2022 results earlier today in Japan, in which the overall business grew double-digits and the PlayStation business unit achieved record Q3 sales and operating profit. The prior record-holder was this same quarter last year.

Within the report, it showcased growth across all PlayStation product categories. Hardware output more than doubled since last year, as did retail software, and digital content rose substantially. As I’ll show in a later chart.

PlayStation 5 (PS5) hardware had its best quarter to date measured by shipments, by a wide margin. Sony shipped 7.1 million PS5 units between October and December, up a whopping 82% compared to last holiday’s 3.9 million. That brings lifetime PS5 unit sales to 32.1 million. It’s now outsold the Sega Genesis, which peaked at 30.75 million overall.

Not only that, Sony actually increased its annual hardware guidance! While PS5’s better availability is impressive given higher input costs and supply chain disruptions of calendar 2022, it’s worth noting the console is still tracking below PlayStation 4 (PS4) at this same point in the early life cycle.

Partially driving demand for the new console was a suite of AAA games around this time. Third-party hits Call of Duty: Modern Warfare 2 and annualized sports games plus a system-seller like God of War Ragnarök alongside a supplementary title like Gran Turismo 7 significantly bolstered software, as both physical units and digital downloads soared.

“We are seeing steady results from the various measures we have taken in terms of both hardware and software,” management said in prepared remarks. “And we believe that we have created positive momentum to re-accelerate the growth of the game business centered on the expansion of the penetration of PlayStation 5.”

Here’s a deeper dive into the numbers behind this all-time holiday season, then a look at the company’s guidance and my predictions. Including a new chart format for the category mix!

Across the broader corporation, as shown in the above slides, Sony generated 13% more revenue this quarter up to $24 billion. Operating profit however declined 8%, to $3 billion. That second figure was the second best result in company history in local currency, behind only Q3 last year.

Shifting focus to the PlayStation segment alone, which is called Game & Network Services (G&NS) in Sony’s reporting. Sales increased a staggering 53% to $8.8 billion. Operating profit rose a more modest, yet still impressive, 25% to $820 million.

PlayStation exhibited exceptional top-line and profit growth that led to both of these figures being all-time records. Now it’s partially due to foreign exchange movement in a volatile rate environment, yet it’s mainly due to improving underlying fundamentals in its gaming business. Better hardware sales due to supply being there and demand staying strong, plus a big boost from first-party software. Even rising costs related to network business and acquisitions couldn’t hold profit back.

This was an astounding quarter. Looking at product category sales, nearly all of them moved up double-digits in Q3. Quite literally off the chart, as shown in the last one in the above gallery. Hardware was the biggest contributor at 35% of the total, since it more than doubled since last holiday. Add-On Content was the next biggest segment at 21%, even if it “only” increased 5%. Digital software comprised 20% of the PlayStation business, improving its sales 35% year-on-year. Physical Software proved to be the biggest mover from a growth standpoint, more than tripling.

Factoring in this latest record quarter, annualized revenue for G&NS is upwards of $22.84 billion right now. That’s the highest in history, tracking towards a best-ever year of sales. In fact, it’s $3 billion more than it’s ever been. I can’t overplay how well gaming is doing from a revenue standpoint, approaching a ridiculous $23 billion.

Profitability over the last 12-month period is a bit more tempered, as annual operating income totals $2.11 billion at present. It’s certainly recovering from where it was last quarter, trending towards pandemic highs.

Running down a quick comparison to industry peers, Sony is still in second place from a revenue standpoint. Tencent reports in March; for now, its annual sales are around $25.8 billion. PlayStation slots in here at the $22.84 billion. In Microsoft’s report last week, which I covered here, revenue over the last 12 months equaled $15.56 billion. Lastly, Nintendo is at $13 billion, though it has also yet to report and will do so next week. Keep in mind that a combined Microsoft and Activision Blizzard entity could eventually compete with Sony for second place, though I’d estimate it’s not above $20 billion to $21 billion just yet.

Now I’ll dig more into additional info from Sony on unit sales, network results and engagement stats for its gaming vertical.

Full game software sales declined in Q3, from 92.7 million to 86.5 million. That accounts for both internal teams and external publishers, including bellwethers like Call of Duty, Madden NFL and FIFA.

For first-party titles, this is where the real boost occurred. It nearly doubled from 11.3 million last year to 20.8 million. The bulk was, of course, driven by God of War Ragnarök which started at 5.1 million units during its launch week in November and has since reached the 11 million milestone. It’s the fastest-selling platform exclusive in PlayStation history across both of these time periods, a ridiculous result for the sequel to God of War (2018).

Within software, digital downloads compromised 62% of total game sales on PlayStation. That’s the exact same figure as last year, and only down slightly from 63% last quarter. The aforementioned growth of retail sales certainly affected this split.

Sony’s rebranded PlayStation Plus service now has 46.4 million subscribers, down compared to last year’s 48 million. Still, it’s higher than the 45.4 million last quarter thus showing sequential growth.

The other major user stat of Monthly Active Users (MAUs) edged up a million in Q3 to 112 million. It’s also 10 million higher than Q2, since the holiday season tends to attract new users and returning players alike. Sony also cited the transition to current generation hardware as a reason for user acquisition. The percentage of that 112 million that were solely on PS5 moved up to 30%, or roughly 33.6 million individual accounts.

“Engagement metrics of users who transitioned from PS4 to PS5, such as their PS Plus subscription rate, gameplay time, and average spending amount are significantly higher than those when they played on PS4,” executives said. “So we will continue to focus on accelerating the transition of PS4 users to PS5.”

Sony points out that almost 30% of MAUs on PS5 are users that never had a PS4, thus it’s attracting various new players, and payers, to the ecosystem. An essential part of any console business.

Intriguingly, for PlayStation players, total gameplay time declined 3% versus last Q3. Compared to the quarter ending September, it was up 6%. Focusing strictly on the month of December, hours jumped 14% compared to November.

“We believe that user engagement is on a recovery trend due to the penetration of PS5 and the contribution of hit titles,” management said. Based on the way hardware is trending, how high revenue has grown and its excellent title lineup last year, I certainly see that same trend.

It’s hard to overstate how exceptionally PlayStation performed in the months between October and December 2022.

To secure record revenue and profit during this macro environment, when people are facing inflation and returning to other activities, it’s truly the exception within consumer tech and gaming. Quite literally moving the opposite direction of a major peer like Microsoft. Even Apple is facing revenue challenges as it reports 5% decline in sales just this afternoon. Related publishers around the globe are struggling to outpace last year’s results. I’m supremely impressed with the leadership executing on its strategies, namely how it secured enough consoles to satiate pent-up demand.

Moving into the last quarter of its current fiscal year, management provided updated guidance for a variety of numbers. It slightly reduced total sales guidance down 1%, then bumped up operating income by 2 percentage points. These now imply around $81.2 billion in revenue and $8.33 billion in profit for fiscal 2022.

As for PlayStation, management reiterated its annual sales forecast which would be a record of $25.6 billion. It also raised guidance for gaming operating profit by around 7%, now expecting $1.7 billion for the year mainly because of currency movement. I think the top-line figure is fine for PlayStation as a segment, though firmly believe that operating profit forecast will be easily achieved. It feels too conservative given the latest holiday performance.

On the flip side, management is being even more aggressive on its PS5 unit sales outlook for the year. It’s raising the already high forecast by a million units, up to 19 million. Which would bring lifetime shipments to 38.3 million. All I can say is: Wow. Talk about upbeat! Right now, PS5 sales for fiscal 2022 are at 12.8 million thru 3 quarters. Sony needs to ship a massive 6.2 million in the 3 months ending this March in order to accomplish this target.

Now, I thought they were out of their collective mind last quarter. And I remain my usual skeptical self, considering 6.2 million is more than literally any other quarter in the PS5 life cycle other than this past holiday season. Management’s confidence must be rubbing off on me, as I think Sony will get close: I’m bumping my annual forecast to 17.5 million to 18 million.

What else could drive results into March? Well, PlayStation VR2 launches in a few weeks though I’m tepid on its commercial upside. Virtual reality remains a niche market, and the cost to entry is high for a peripheral that requires a pricey base console. I expect 1 million units to ship in the quarter ending March, yet a marginal impact on the bottom line considering it’s also costly to make headsets.

There’s also Sony’s transmedia push, which is paying dividends for both gaming and its Pictures division. In particular, the collaboration with HBO on The Last of Us is a smash hit and having broader audience appeal beyond any expectation. It’s attracting massive viewership and driving sales of September’s console release of The Last of Us Part 1, which is also launching on PC before fiscal year-end, and June 2020’s The Last of Us Part 2.

Well, talk about a lot to cover! It’s been a busy season already. Thanks for checking out another recap. Head on over to the latest earnings calendar for more dates to come, and I’ll have a full rundown of Nintendo’s results after the company publishes them next week.

Until then, be safe everyone!

Note: Comparisons are year-over-year unless otherwise noted. Exchange rate is based on reported average conversion: US $1 to ¥141.7.

Sources: Company Investor Relations Websites, HBO Max (Image Credit), USA Today (Image Credit).

-Dom

Microsoft Gaming Sales Decline in 2023 Q2 Despite Xbox Monthly Active Users Reaching Record 120 Million

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First up on the new year’s earnings calendar is Microsoft, which reported its fiscal 2023 second quarter results last week.

Results were mixed in the holiday period for the software giant and its Xbox business, mostly expected coming off last year’s all-time highs. Just last quarter, gaming had its best Q1 ever.

That’s not the case for Q2, where normalization towards pre-pandemic levels has started in earnest. Even so, it was still one of the best quarters in Xbox history, which is important to keep in mind as headlines are often gloomier than reality.

In the three months ending December, Microsoft’s gaming revenue showed a double digit decline for the first time in three years. Mainly due to a sparse exclusive game slate, lower third-party monetization and ongoing hardware challenges. From a dollar standpoint, it was still the third best Q2 ever for Xbox, as I’ll illustrate soon. The sky isn’t anywhere near falling.

Executives tried to paint a picture around engagement and Xbox Game Pass while not providing any updated subscription numbers for its flagship service. On the bright side, they did share an updated figure for Monthly Active Users (MAUs) across the Xbox ecosystem as it passed a major milestone by year-end.

“In gaming, we continue to pursue our ambition to give players more choice to play great games wherever, whenever, and however they want,” said CEO Satya Nadella. “We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices.”

I’ll now move into the underlying numbers for the latest quarter, then provide a look ahead to the back half of Microsoft’s fiscal year.

Between October and December, Xbox generated $4.76 billion in revenue which is 13% lower than the same time last year. That was in-line with guidance. While this number is the lowest it’s been in three years, it’s the third best Q2 in history only behind the latest two.

This historical context really illustrates the sort of impact quarantine spending had on the industry, as just last year Xbox recorded an all-time second quarter revenue high of $5.44 billion.

Executives pointed to this strong comparable as the main reason Xbox suffered declines across first and third-party content plus lower hardware sales output. I wouldn’t necessarily call it an outright disappointing holiday season; it’s just not nearly as good as last year.

One caveat is currency impact on this figure. You’ll see in the above slides that total gaming sales were down 9% in “constant currency.” This implies a 4% impact from exchange rate movement. I tend to report the overall figure because global companies must navigate these shifts, while also noting this particular point when fluctuations are especially drastic.

Taking into account the latest quarter, current annual gaming revenue stands at $15.56 billion. As shown in my chart, Xbox segment sales have been slowing lately after peaking around a year ago. It was bolstered by last holiday’s record quarter until now. This chart also keeps quarterly movement in context as it smooths out the results, displaying how well gaming has been faring versus the Xbox One generation.

Within these articles I like to run a quick comparison to industry peers, even this early in the season. Tencent currently has the most annual revenue from gaming, at upwards of $25.8 billion. Sony reached $20 billion. Here is where Microsoft’s $15.56 billion slots in, while Nintendo rounds out the list at $13 billion. If accounting for Activision Blizzard’s latest $7.4 billion in annual sales and assuming roughly $2 billion in redundancies and overlap, the combined entity could have between $20 billion to $21 billion in annual gaming output, potentially matching PlayStation depending on where exchange rates go.

Now, revenue isn’t the sole metric by which a division’s health is measured. Microsoft doesn’t share specifics on Xbox’s profitability, so we’re left to infer here based on its More Personal Computing (MPC) business segment results. Gross margin dollars reduced by 29%, driven by a mix towards lower margin businesses that include gaming. Expenses rose 6%, thus segment operating income dropped 47% to $3.32 billion. All of this implies profitability dropped in the quarter for Xbox, consistent with its lower sales output.

Moving over to category mix to show the underlying dynamics. Within the Xbox business, both sub-segments of Xbox Content & Services and Xbox Hardware experienced comparable double-digit declines as the business cooled.

The larger contributor Content & Services, which includes software and subscriptions, lowered 13% in the quarter. Right at company guidance. It accounted for $3.38 billion in sales, or 71% of Xbox’s total. Nearly the same contribution as last year, and lower than recent quarters since its hardware counterpart has been inconsistent.

During the last 12 months, Content & Services has generated $12 billion in revenue, making up 77% of annual gaming sales. It’s been at that same exact percentage for the last six consecutive quarters.

As has been tradition, Microsoft yet again didn’t share an update on Xbox Game Pass subscription figures. The latest of 25 million is way outdated, from back around September 2021. I often say that we learn just as much, if not more, from what a company doesn’t share. This is one of those cases. I assumed Microsoft would boast when it passed 30 million subscribers, so I assume it’s below that right now. In my predictions piece for 2023, I said it could reach that threshold by Microsoft’s fiscal year-end in June and move higher in the back half on the strength of new releases. I just hope Microsoft is more transparent, at some point.

Thankfully executives did provide another engagement stat: MAUs for the Xbox network overall. Finally. Two years ago, this figure crossed the 100 million user threshold. Now, according to Nadella, it’s at a record 120 million. Thus recently averaging 10 million per year in user growth and nearly double the 65 million achieved back in fiscal 2019. It makes sense that management would point to this within its strategy that emphasizes ecosystem over hardware, expanding its offering to more devices than ever and making a play that stacks up accounts as opposed to unit sales.

Rounding out the category mix with Xbox Hardware, this segment declined 13% to $1.38 billion. The slides cited both a lower average price and number of units sold compared to last holiday, which I’d call somewhat of a concern at this early life cycle stage. Also concerning is the dollar output, which is less than the second quarter in both 2018 and 2019 during the middle of last generation. It shows a few things: hardware is less important to the overall Xbox business than ever before, the lower-priced Xbox Series S is contributing a substantial share plus supply constraints continued into the quarter as competitors were able to better navigate the cost environment.

On an annualized basis, Xbox Hardware is tracking at $3.6 billion in sales right now. The lowest in six quarters. It bucks the trend of a traditional console cycle, where sales should be increasing in the early years. Note that the Xbox Series X|S family of devices launched in November 2020.

It begs the question: How many Xbox Series X|S consoles have shipped to date? Last quarter, I estimated between 17.5 million and 18 million. Given the revenue indicators and supply situation, I guess it’s approaching 21.5 to 22 million at this point, implying around 4 million shipped in the holiday quarter. This would be virtually in-line with Xbox One at this point in the life cycle (22.1 million). My estimate is partially because I notice Nadella is no longer boasting the family as the fast-selling in Xbox history. And it’s nowhere near its current generation counterpart. Sony’s PlayStation 5 recently passed 30 million sold-thru to consumers, and was already at 25 million lifetime shipped in September, showing strength in availability towards the latter parts of calendar 2022.

Fitting the general themes of macro pressure on tech in particular, Microsoft overall had its slowest quarterly growth in six years and missed analyst estimates. Top-line sales rose 2% to $52.7 billion, while analysts thought it would be above $53 billion. Microsoft Cloud alone increased 22% to $27.1 billion in sale, which met expectations. MPC was the only segment to decline, moving down almost 20% to $14.2 billion on PC market weakness and high output last year.

On the profit side, operating income declined 8% to $20.4 billion. Profitability was impacted by a $1.2 billion charge related to laying off 10,000 employees, or 4.5% of its workforce, which the company announced earlier this month. That’s a lot of talented people losing their jobs, notably in a shift towards artificial intelligence businesses, and I hope they are able to find success elsewhere.

General slowdowns hit both Microsoft and its Xbox division during the holiday period, even if it was still one of Xbox’s best quarters when compared to recent history. Higher Xbox Game Pass subscriptions propped up weakness elsewhere, especially the first-party game lineup, and hardware results reveal that the Xbox Series X|S family needs to ramp up supply as soon as possible.

I’ll finish up here with guidance for the next quarter, ending this March, according to Chief Financial Office (CFO) Amy Hood.

Management expects gaming revenue to decline in the “high-single digits.” Assuming it’s down 8%, that implies quarterly Xbox revenue of $3.44 billion. Its lowest in three years.

Xbox Content & Services revenue will decline in the “low-single digits.” Hood claims Xbox Game Pass user growth will outpace “lower monetization per hour” in both first and third-party games. It’s a corporate way to say subscriptions will rise while active engagement, and thus spending, will be down. Let’s assume the decline is 5%, implying Q3 sales of $2.86 billion from Xbox Content & Services.

Microsoft didn’t actually provide an outlook for Xbox Hardware. Based on the above, signals are pointing to another double-digit drop that might be upwards of 20%. The current quarter is a continuation of last year, where first-party output is light and the supply of Xbox Series X in particular will be hamstrung.

Still, the calendar will pick up soon as Xbox Game Studios will publish Minecraft Legends in April then Redfall in May. Thing is, I’m not expecting either of these to move the needle in a major way on the financial side. Certainly not as much as something like Starfield or Forza Motorsport, both of which are slated for this year without a concrete window. Personally I’d be surprised if Starfield makes it out by the fiscal year-end in June.

Speaking of June, Microsoft management reiterated on the conference call that, while its guidance doesn’t include any impact, they continue to anticipate the $69 billion Activision Blizzard deal will close by then. I’m way more skeptical on that front, as displayed in my aforementioned predictions article.

Thus ends my first big recap of 2023, in what will be a shaky quarter for many public companies across the games industry and related sectors. Check back soon for more analysis and a full rundown of results for platform holders Sony and Nintendo. Thanks for reading! Be well, all.

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

Sources: Company Investor Relations Websites.

-Dom