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.
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.
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):
Resident Evil 4 Remake
Hogwarts Legacy
MLB: The Show 23^
Call of Duty: Modern Warfare 2
The Last of Us Part 1
FIFA 23
WWE 2K23*
Elden Ring
Madden NFL 23
Mario Kart 8*
Minecraft
Octopath Traveler II
Metroid Prime Remastered*
Pokémon Scarlet & Violet*
God of War: Ragnarök
Kirby’s Return to Dreamland*
Dead Space Remake
NBA 2K23*
Sonic Frontiers
LEGO Star Wars: The Skywalker Saga
Top-Selling Games of Q1 2023, U.S., All Platforms (Physical & Digital Dollar Sales):
Hogwarts Legacy
Call of Duty: Modern Warfare 2
Resident Evil 4 Remake
MLB The Show 23^
Dead Space Remake
Madden NFL 23
FIFA 23
Elden Ring
The Last of Us Part 1
God of War: Ragnarök
Mario Kart 8*
Pokémon Scarlet & Violet*
Fire Emblem Engage*
Minecraft
Forspoken
Sonic Frontiers
Octopath Traveler II
NBA 2K23*
Monster Hunter Rise
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.
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):
Hogwarts Legacy
Call of Duty: Modern Warfare 2
Dead Space Remake
Madden NFL 23
FIFA 23
The Last of Us Part 1
Elden Ring
Wild Hearts
Like a Dragon: Ishin!
Octopath Traveler II
God of War: Ragnarök
Minecraft
Mario Kart 8*
Pokémon Scarlet & Violet*
Kirby’s Return to Dream Land*
Company of Heroes 3
Sonic Frontiers
The Last of Us Part 2
NBA 2K23*
Theatrhythm Final Bar Line
Top-Selling Games of 2023 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):
Hogwarts Legacy
Call of Duty: Modern Warfare 2
Dead Space Remake
Madden NFL 23
FIFA 23
Elden Ring
Fire Emblem Engage*
God of War: Ragnarök
The Last of Us Part 1
Forspoken
Pokémon Scarlet & Violet*
Minecraft
Mario Kart 8*
One Piece Odyssey
Sonic Frontiers
Monster Hunter: Rise
NBA 2K23*
Need for Speed: Unbound
Marvel’s Spider-Man: Miles Morales
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.
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.
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).
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.
Now that the calendar has turned to January, it’s time to say goodbye to 2022. Which means it’s also time to, yet again, claim that I can accurately predict the future!
As I’ve done in recent years, I tend to kick off the new year by listing out a few predictions for the games industry across the next 12 months. These expectations can range across a number of topics: hardware, software, services, acquisitions, workplace trends and the value of the global games market.
Before diving into the new piece, I like to check back to hold myself accountable for the prior year. Here were my main predictions for 2022, where I successfully called that there would be more unionization, Nintendo wouldn’t announce a new Switch, Sony would rebrand PlayStation Plus and the impact of NFTs and blockchain would be felt in various places.
Misses included the sequel to The Legend of Zelda: Breath of the Wild, now known as Tears of the Kingdom, launching (which it didn’t), the global games market would grow slightly (it declined slightly) and a new BioShock being announced (total long shot, I admit).
Focusing on the future, here’s a list of seven predictions, and a little bonus, for 2023. Let’s see how I fare this time around!
Microsoft & Activision Blizzard Deal Closes in Calendar 4th Quarter
I’ll rip the band-aid off right away. Apologies to everyone who is sick of hearing about Microsoft’s pending purchase of Activision Blizzard: This story isn’t going anywhere anytime soon. Especially now that regulators around the globe have sunk their teeth into the details. Rightfully so, for a deal worth upwards of $69 billion. Currently, the companies still expect the deal to close in June. Personally, I’m skeptical and think it moves back to around an October to December window.
Why? Inquisitive regional regulators in the United Kingdom and United States combined with a glacial legal system. The Competition and Markets Authority (CMA) in the U.K. will publish the results of its investigation in April. The U.S. Federal Trade Commission (FTC) is taking action to potentially block the acquisition, kicking off a legal battle that will commence trial in August. These things alongside delays due to likely appeals if the decisions go against Microsoft mean that I don’t think it meets the current estimate. I do, however, think it ultimately will close before year-end.
Nintendo Goes Another Year Without Announcing a Switch Successor
Continuing my main hardware prediction from a year ago, I’m not betting on Nintendo announcing any major Switch hardware in the upcoming four quarters. One of the best-selling consoles ever is still moving units quite well for this point in the life cycle. It’s trending towards being the top-selling console of 2022 in the United States by units according to The NPD Group as demand continues, especially from households that want multiple devices and a record-setting November start for Pokémon Scarlet & Violet.
While Nintendo reduced its fiscal year shipment target from 21 million to 19 million, plus the technology is certainly outdated, I don’t see much upside in executives revealing a new device in a year where The Legend of Zelda: Tears of the Kingdom and potentially other flagship titles (Mario? Pokémon?) hit market. The transition to a successor will take a delicate touch, notably when it comes to backwards compatibility with the current library of games and usage of accessories. I’m targeting an announcement for what I hope is called Nintendo Super Switch sometime in 2024, with a release in first calendar quarter of 2025.
Global Games Industry Value Returns to Growth & Passes $188 Billion
Last year, I was more optimistic on the global games market value than I should have been when I thought it could increase a bit. According to NewZoo, the industry’s annual value is trending down 4% to $184.4 billion. This is driven by downward pressure from mobile and console segments, declining 6% and 4% respectively. The weakness in mobile is what I didn’t anticipate, and this category has an outsized impact on the overall figure since it makes up half of the total. Then there’s the limited supply of hardware throughout most of 2022, which didn’t really recover until the fourth quarter.
I expect the industry’s worldwide value to bounce back towards growth over the next 12 months. I could see 2% to 3% growth, which would translate to roughly $188 billion to upwards of the $190 billion milestone. Underlying this recovery will be a reversal of trends including a mobile spending rebound, improved hardware inventory, demand for consoles continuing, PlayStation VR 2 and a much more robust AAA software calendar due to previously-delayed games hitting storefronts. Indicators point to strong console demand alongside titles from major publishers, especially Xbox Game Studios, including various holdovers from the past couple years such as Hogwarts Legacy, Star Wars Jedi: Survivor, Street Fighter 6, Final Fantasy XVI, The Legend of Zelda: Tears of the Kingdom and, hopefully, Starfield.
PlayStation 5 Wins Best-Selling Console in the U.S. Yet Misses Sales Targets
While we won’t know until this week’s full-year report from The NPD Group, PlayStation 5 is currently on track to be 2022’s best-selling console in the United States by revenue. GfK Entertainment said Sony’s latest was the top-selling device in the United Kingdom by units. I expect PlayStation 5 to outpace all peers and earn the win for both dollar sales and units in 2023 in key markets (other than Japan, where Switch is dominant). Supply data shows drastic improvement in the fourth quarter of 2022, and Sony’s own comments point towards further growth. Microsoft’s latest Xbox family isn’t generating as much in dollar sales because its high-end Xbox Series X is still tough to find, and Nintendo’s Switch is in its twilight years.
On the flip side, I’m skeptical Sony can reach its fiscal hardware shipment targets for the next couple years. I don’t see how it achieves a highly ambitious forecast of 18 million for the year ending March. At last count back in September, PlayStation 5 lifetime shipments were at 25 million. Sony announced during last week’s Consumer Electronics Show (CES) the PlayStation 5 family passed 30 million sold-through to consumers, implying at least 5 million shipped in the quarter ending December. That would bring the current year to 10.7 million, requiring upwards of 7.3 million during this month through March. Which isn’t going to happen. Going forward, speculation points to an even higher target for April 2023 to March 2024, where executives might guide to 30 million shipped in the year alone. Even if its suppliers are ramping up production as much as Sony claims, and consumers keep showing interest, that’s too lofty of a goal. I’m much closer to a 22 million to 23 million annual range.
Xbox Game Pass Price & Subscription Base Increases
Here’s a classic two-for, combining a couple of big Xbox predictions in a single entry. At first, these may seem at odds with one another since I believe both the monthly cost and overall user base for Xbox Game Pass will increase in 2023. Starting first with the bad news, it’s inevitable that Microsoft bumps the price of its subscription service. The last time Microsoft raised the monthly price of Game Pass was during 2020, when the PC version doubled from $5 to $10. Recently, Microsoft said full-game prices for Xbox Game Studios releases are going up to $70 this year. I’m thinking the Ultimate tier moves to $18, from $15, while the base version moves from $10 to $13 by next holiday season.
Even considering this, I bet the audience of Game Pass also grows in 2023. How many users did the service actually have in 2022? Sony claims it’s at 29 million. Microsoft told everyone it’s at 25 million almost a year ago. While it might be ambitious, I think Team Xbox will provide two updates on its flagship service during 2023. It can pass 30 million by its June fiscal year end, then achieve 35 million by December. There’s a number of benefits boosting the user base towards these milestones. It’s the prospect of first party projects like Starfield and Redfall, maybe a suite of Activision Blizzard titles, plus additional external partnerships especially with Japanese publishers that prove value will continue to rise even if the cost does too.
Special Year of Fighting Game Releases & Announcements
When it comes to genres that may define 2023, I expect fighting games to punch their way back into the spotlight. Relevance here will be boosted by a couple massive launches from legendary teams like Capcom and Bandai Namco alongside newcomers like Riot Games, in addition to select announcements of future titles. Starting with games set to launch, Capcom will produce another mainline entry in its Street Fighter series with Street Fighter 6 in June. Based on anecdotal evidence from its beta testing, people are way upbeat on this one after the disappointing predecessor. Then there’s Tekken 8 from Bandai Namco, which debuted a new trailer at The Game Awards and executives said could launch in 2023. Adding to the calendar might also be Riot Games’ Project L, an exciting twist on the League of Legends universe.
In terms of announcements and reveals, SNK said in August that Garou: Mark of the Wolves 2 is currently in development. Of course, the elephant in the room is Warner Bros’ NetherRealm, which hasn’t released a game since Mortal Kombat 11 back in 2019. If it sticks to the usual schedule, its current project should be Injustice 3. Back in October, NetherRealm’s Ed Boon said the team will share information “in due time.” I expect that time to be mid-year. Finally, I’m anticipating a surprise fighting game hit within the casual space, along the lines of last year’s MultiVersus. Could it be the return of PlayStation All Stars Battle Royale? Will Epic Games partner with every single brand and make the ultimate metaverse fighter? Which title will be the next to surprise the FGC and solidify 2023 as the Year of the Fighting Game? Your guess is as good as mine, though I certainly expect at least one breakout banger.
Amazon Games Makes Massive Studio Acquisition
First off, I have no real basis for this. There haven’t been rumors or speculation. It’s not based on inside information. It’s more of a hunch with the way Amazon Games has been aggressively pushing into the space, especially the past couple years with releases like New World and Lost Ark alongside a deal with Glowmade for a game based on original IP. It’s collaborating with the likes of Bandai Namco on the MMORPG Blue Protocol plus Crystal Dynamics for a future entry in the long-running Tomb Raider series. It partnered with Riot Games to host a Valorant event. The multinational retail conglomerate also owns streaming platform Twitch, and its Prime Gaming service continues to offer incentives for gamers to keep up Amazon Prime subscriptions.
I think Amazon’s level of investment accelerates in the next 12 months, during which it might even outright purchase one of the remaining independent gaming companies. Targets could include the likes of Electronic Arts, Square Enix, Take-Two Interactive or even Ubisoft, the last of which already has an acting relationship for streaming service Amazon Luna. If I had to bet, I think Ubisoft is a prime candidate. From a cost perspective, it’s more attractive than the likes of Electronic Arts. Square Enix has been selling off assets and refocusing towards NFTs. Take-Two seems to pride itself on remaining independent with its 2K Games and Rockstar units. It sounds like Ubisoft has fielded offers in the recent past, so Amazon might very well be looking into a potential buy already.
You know I couldn’t finish the list without a fun bonus prediction! I think there’s a really good chance that we see what non-gaming projects Bungie has been working on within the Destiny universe. It’s no secret the developer is ramping up hiring for its transmedia offerings, including adding former Riot Games animation director Derick Tsai to become Head of Development for Destiny Universe Transmedia. Plus, now that Bungie is owned by Sony, I’d imagine there’s active chatter amongst Sony’s film and television divisions to adapt Bungie’s popular science fiction IP into different types of media.
To make this prediction better, I bet Bungie both reveals and launches a transmedia property based on Destiny in 2023, whether it’s a movie or show. The game has rich lore and great characters which I think could translate well into an episodic format. Similar to how the live game does seasonal content and weekly story drops. I’d love to see its world represented outside of gaming, exposing the excellence that is Destiny to an even broader audience than ever before.
Note: Comparisons are year-over-year and monetary values are quoted in US Dollars unless otherwise mentioned.
Sources: Foureyes Furniture on YouTube (Image Credit), Getty Images, GfK Entertainment, NewZoo, The NPD Group.
Summer is trending towards its end here in the States, and spending on video games is showing similar signs of laziness.
As I’ve writtenaboutrecently, publishers and developers are generally seeing declines from highs of the last couple years when they benefited from more restrictive quarantine measures. This is reflected in today’s monthly sales report from The NPD Group, which showed another period of lower spending by consumers across all of gaming.
With an almost double-digit decline in total spend during July, the games industry experienced its ninth consecutive month of contraction. It’s worth keeping in mind that last year was an all-time high for July spending, so it’s nowhere near a doomsday scenario.
This is attributed to a variety of factors, namely a normalization towards pre-pandemic levels and leaning towards other entertainment options. Purchasing on subscriptions like Xbox Game Pass and PlayStation Plus, continues to be the lone bright spot. Losses elsewhere, notably mobile experiencing its worst decline of 2022 to date, prove to be weighing down the results.
Out of Video Game Content, Hardware and Accessories segments, only Hardware was able to generate any sort of monthly growth.
In what I’d call the surprise upset of the year, character fighter MultiVersus emerged victorious for overall software sales. This free-to-play game from Warner Bros managed to snag the top spot away from 2022 heavyweights like Elden Ring and Lego Star Wars: The Skywalker Saga solely due to people purchasing its founder pack.
Positive signs on the console front continued for Sony’s PlayStation 5 as it led hardware ranks last month when measured by dollar sales, bolstered by improved stock at retail. Which is reassuring, even if temporary, given global chip cost is still increasing and supply chain disruptions are still rearing their ugly head.
The NPD Group’s Mat Piscatella shouted out a couple items of note on Twitter, namely the aforementioned improving supply for hardware and an “impressive” start for Xenoblade Chronicles 3 on Nintendo Switch which debuted in fourth place on the software list.
Look below the fold, so to speak, for a full recap of July’s monthly sales report.
United States Games Industry Sales (July 3rd, 2022 – July 30th, 2022)
When compared to the record $4.57 billion in monthly earnings this time last year, total consumer spending on gaming dipped 9% in July to $4.18 billion. The gallery above displays a handful of handy images digging into the specifics. I’d point attention to the trend chart showing the past few years, clearly displaying this latest amount is nearly identical to that of July 2020.
Expanding to an annual figure for more context, aggregated 2022 sales are currently down 10% to $30.46 billion. This was upwards of $33.86 billion in the seven months ending July 2021.
The biggest contributor was Video Game Content, which counts software and related purchasing, hitting $3.67 billion during July. That’s roughly 88% of overall spending for the month. It’s also off 10% from last year’s $4.1 billion.
Mobile is traditionally the main factor within Content. Unfortunately, mobile just experienced its worst monthly decline of the year to date. This was vast under-performance, considering historical seasonality indicates this is when mobile spend should actually be doing well. While the report didn’t share an exact dollar or percentage movement, I’d call it a yellow flag that’s worth monitoring as we move more into the back half of 2022. Top mobile performers, in order, were Candy Crush Saga, Roblox, Coin Master, Pokémon Go and Evony: The King’s Return.
Also a part of Content, premium games boasted three newer releases within the top eight of July’s best-sellers.
The shocker here again being July’s leader in MultiVersus, which hit open beta with only days left in the tracking period plus was the best-selling title on the Xbox platform list. It’s reminiscent of 2017’s Fortnite Battle Royale, which started its reign in beta form and remained that way for a while. The reason a free-to-play game like MultiVersus was even on the list, let alone led, was the strength of its Founder’s Pack offering things like characters and in-game currency. Combine a low barrier to entry with solid gameplay and optional monetization for an estimated 12 million players right now and that’s a recipe for solid earnings.
This also means Warner Bros published two of the Top 3 titles within the premium ranks, seeing as Lego Star Wars: The Skywalker Saga moved down one spot to third place. The sheer consistency of this 3D action adventure is notable, maintaining a strong position since starting out back in April.
Sandwiched between those as July’s runner-up was, of course, Elden Ring. Which has been, and will be, a constant force on the U.S. charts. Just yesterday, publisher Bandai Namco shared how From Software’s latest surpassed yet another sales milestone, reaching 16.6 million units sold globally as of June. That’s up 3.2 million since March’s 13.4 million total. I expect it to achieve 20 million next quarter as it will compete with Call of Duty: Modern Warfare 2 for this year’s domestic chart-topper.
The second new release to chart in July was Xenoblade Chronicles 3, making it to #4 even without its digital sales counted. That’s the best start for any title in the series from a ranking standpoint. Its predecessor Xenoblade Chronicles 2 ranked #16 back during a heavy holiday month of December 2017, plus the original didn’t make the Top 10 back in April 2012 when it launched in North America. This year’s entry was also Switch’s best-seller during July.
Digimon Survive was the only other new entry on the overall chart, achieving eighth place to start. This is quite the accomplishment for the visual novel slash tactical RPG also published by Bandai Namco, considering it went on sale with only a couple days left in the July tracking period.
As for other movers, Electronic Arts’ F1 22 stood out as passing other titles into the Top 10 during its first full month of sales. Overwatch and Nintendo Switch Sports dropped outside the Top 10 while two older Call of Duty titles in Black Ops Cold War and 2015’s Black Ops 3 shuffled into the Top 20, showing a clear consumer appetite ahead of mid-September’s showcase for this year’s military shooter.
With respect to 2022 so far, the Top 10 list was unchanged as Elden Ring, Lego Star Wars: The Skywalker Saga and Pokémon Legends: Arceus remain as best-sellers. I expect that to change in August. Without a doubt.
Here’s a full rundown of the best-selling software during July and 2022 right now.
Top-Selling Games of July 2022, U.S., All Platforms (Physical & Digital Dollar Sales):
MultiVersus
Elden Ring
Lego Star Wars: The Skywalker Saga
Xenoblade Chronicles 3*
Call of Duty: Vanguard
MLB: The Show 22^
Mario Kart 8*
Digimon Survive
Minecraft
F1 22
Kirby and the Forgotten Land*
Super Smash Bros. Ultimate*
Animal Crossing: New Horizons*
Overwatch
Pokémon Legends: Arceus*
Nintendo Switch Sports*
Call of Duty: Black Ops Cold War
Far Cry 6
Call of Duty: Black Ops 3
Monster Hunter Rise
Top-Selling Games of 2022 So Far, U.S., All Platforms (Physical & Digital Dollar Sales):
Elden Ring
Lego Star Wars: The Skywalker Saga
Pokémon Legends: Arceus*
Horizon Forbidden West
MLB The Show 22^
Call of Duty: Vanguard
Gran Turismo 7
Kirby and the Forgotten Land*
Mario Kart 8*
Madden NFL 22
Minecraft
Nintendo Switch Sports*
FIFA 22
Marvel’s Spider-Man Miles Morales
Monster Hunter Rise
Super Smash Bros. Ultimate*
Animal Crossing: New Horizons*
Call of Duty: Black Ops Cold War
Mario Party Superstars*
Dying Light 2: Stay Human*
The only large segment to gain in July was Video Game Hardware, moving up a solid 12% to $362 million in consumer spend. I believe this is the best result since way back in July 2008, when it reached almost $450 million during the height of Nintendo Wii fever.
Funny what can happen when people can find boxes at retail!
Consoles sales are still currently down year-to-date, albeit Hardware is the only category to remain in single-digit decline territory. During the first seven months of 2022, spending totaled $2.5 billion or 7% lower than the $2.67 billion at this point last year.
Just as it did back in June, PlayStation 5 generated the highest amount of dollar sales compared to all other competitors. Xbox Series X|S came in second place, as I confirmed with The NPD Group directly. Both families generated double-digit gains in revenue compared to July 2021, which is reassuring at this stage in the cycle given where supply has been the past two years.
This is great sign for these manufacturers individually and the general potential of the domestic industry here in 2022, implying better inventories and ongoing demand. The economic equation has been out of whack for too long, leading some to believe that scarcity was leading to increased levels of buyer interest. Personally, I maintained the demand side has been consistently high since late 2020. It’s just time for supply to catch up, hopefully over a longer time frame rather than a temporary boost.
If measured by unit sales, Nintendo Switch topped the category again during July. Similarly, PlayStation 5 was the runner-up by this metric. Same as June, in both regards.
The major takeaway for those that track these things closely is supply constraints might very well be easing. Slowly. Or the refrain could be temporary. With the semiconductor situation globally where experts are still projecting 10 to 15% price increases, I’m hesitant to be too optimistic in this area. What’s great is the supply chain seems to be firming up. That’s on display with PlayStation’s results here plus something like Valve increasing production of its Steam Deck handheld. Consumer electronics are hitting the market.
Along these lines, Sony is quite upbeat on the remainder of this year into early next year for PlayStation 5, which recently hit nearly 22 million in lifetime shipments. It recently reiterated what I think is an ambitious 18 million units sales target for the fiscal year ending in March 2023. Right now, the current generation of hardware is lagging its predecessor, though executives are signaling strength to the market. I hope that turns out to be true, even if my forecast is in the 15 to 16 million range. As a reference, Sony shipped 2.4 million units during April to June which is up slightly from 2.3 million a year back.
Nintendo is more conservative on its aging Switch hybrid as compared to prior years, setting an achievable target of 21 million for its fiscal year ending at the same time. Granted it’s at over 110 million units lifetime, with only a couple years left before its successor in my opinion as I don’t expect another mid-generation refresh or any sort of “Switch Pro XL HD” version.
The remaining category of Video Game Accessories moved down the most during the month, dipping 22% to just under $150 million. Now, everything in perspective. This is against another record-high for a July month last year when it reached $190 million. Thus, while it’s more than a 20% decline, the comparable period last year was the strongest ever.
When accounting for the year to date, Accessories spend is now just above $1.2 billion. That’s also showing the most precipitous decline of the three categories at 15% lower than last year’s $1.41 billion.
Running in parallel to the Hardware segment during July, a PlayStation product led the charge. The PlayStation 5 DualSense Midnight Black edition was the top-selling accessory, retaining its monthly lead from June. Sony’s controllers, both current generation DualSense and DualShock 4, have been consistently winning the past few months.
Still, the Xbox Elite Series 2 controller maintains its stranglehold on the annual period so far based on generating more revenue per unit because of its premium price tag. It’s been leading year-to-date for a while now.
Accessories isn’t the most glamorous of topics, I’m wondering when we’ll get a virtual reality headset check-in from NPD Group any time soon. In particular, the Meta Quest price increase kicked in earlier this month. Which, even with a dip in demand, might cause dollar sales to rise. I’d still expect a game pad to lead, mainly because of negative reaction from consumers to any sort of price bump in an inflationary environment.
For those of us tracking the U.S. games industry closely, the themes of 2022 were well intact during July: normalization, inflation, supply challenges and lighter spending compared to strong comparables. The release calendar was still quite light, even with a surprise like MultiVersus and a solid start for more niche titles in the West like Xenoblade Chronicles and a Digimon visual novel.
Now, August is when things will really pick up on the premium software side. It’s the perennial start of the games industry’s commercial swell before pushing into the pre-holiday competition.
As it does every year, a new Madden game will kick off the late summer sales rush. Madden NFL 23 fully launches today from Electronic Arts, featuring the late great John Madden on its cover. Regardless of its reviews and reception, this franchise will always be a commercial juggernaut leading into the football season. I’m expecting it to lead August’s ranks, and easily at that.
The other brand new AAA launch for August is Saints Row incoming next week on a multitude of platforms. Volition’s latest in the long-running open world franchise is a reboot this time, so it’s somewhat of a wild card when it comes to sales. I think it’s releasing at the perfect time, with no Ubisoft or Rockstar open world debuting alongside, which will provide a noticeable commercial benefit. Published by Deep Silver, I see Saints Row starting in the Top 5 on August’s overall software list.
Otherwise, Nintendo’s slate is light as a feather without any major games of note. Soul Hackers 2 from Atlus will be out soon, and I could see an appearance in the Top 15. PlayStation also launched its Marvel’s Spider-Man Remastered on PC, which could very well fling back onto the charts.
Considering how stock might go, I’m forecasting another PlayStation 5 dollar sales lead in August. July’s numbers and anecdotal evidence all show a continually improving supply situation for Sony and its peers. Plus, a major multi-platform sports title like Madden hitting market means there’s going to be more casual folks yearning for the hottest new generation console. That said, I’ll wager Nintendo Switch keeps its unit sales win streak alive even without any first party bangers.
That’s a wrap on this past month’s analysis. I highly recommend checking out Piscatella’s thread on social media here because he highlights more on the platform side and various details. As always, thanks for visiting. Be safe and healthy out there!
*Digital Sales Not Included, ^Xbox & Nintendo Switch Digital Sales Not Included
Note: Comparisons are year-over-year unless otherwise mentioned.
First it was Microsoft. Then it was Sony. Now it’s time for Nintendo to get in on the action, reporting its first quarter fiscal 2023 (already!) financial results out of Japan today.
Like trends seen at other console manufacturers, Nintendo’s numbers were mixed with a sprinkling of positive highlights and major milestones. The Kyoto-based manufacturer and publisher is experiencing normalization back towards pre-pandemic levels, facing the impact of a high comparable last year, hardware supply challenges, inflationary pressure plus a lighter lineup of summer blockbusters.
During the three months ending June, Switch passed a major milestone in terms of its global unit sales. It’s now become only the third home console ever to surpass the 110 million units shipped threshold, sharing such rarefied air with Sony’s PlayStation 2 and PlayStation 4. Even amidst chip shortages going into its sixth year on market, the Switch is persevering.
Even so, Nintendo’s financials proved to be weaker than the same time last year. Both revenue and operating profit experienced declines, the latter in the double-digit range. Gains due to a weaker yen and Switch OLED’s higher contribution couldn’t outweigh pressure from chip shortages and people returning to experiential spending elsewhere. It’s also important to keep in mind how the last two years have been outliers, in many respects.
“Positive factors included the depreciation of the yen and the addition of Nintendo Switch OLED Model with its high unit price to the hardware lineup,” executives shared in the company’s presentation. “But hardware production was impacted by factors such as the global shortage of semiconductor components, resulting in a decrease in hardware shipments and subsequent decline in overall sales.”
This is partially due to lower software unit sales, as Switch saw less than half as many “million-sellers” in this year’s fiscal Q1. New releases centered on casual sports, as both Nintendo Switch Sports and Mario Strikers: Battle League hit during this window, and both became million-sellers. Kirby and the Forgotten Land continues its excellent performance, becoming the best-selling game ever in the mainline Kirby franchise. Like usual, Nintendo’s software results were bolstered by ongoing momentum from the likes of Mario Kart 8, Animal Crossing: New Horizons and the healthy Ring Fit Adventure.
Nintendo, and I, expected this sort of movement from last year’s highs based on things like the general release slate and various macroeconomic factors. Which is why the company reaffirmed annual guidance around sales, profitability, hardware and software units. I’ll write a bit later about my own forecasts given this framework.
There’s not a moment to waste! It’s time to slide right into the numbers. Get ready for two whole galleries of images, the first from Nintendo’s presentation and the second a grouping of my own charts displaying key financial indicators.
During this April to June time frame, Nintendo generated around $2.37 billion in revenue or 5% lower than last year when measured in local currency. Operating profit totaled $784 million, representing a 15% drop on rising expenses mainly associated with Switch marketing and game development.
It’s a classic mean reversion I’ve written about for similar results recently, a dip towards more normalized spending after two years of substantial boosts from the pandemic. While COVID and its variants are still present, there are more people vaccinated which means they are turning to other types of entertainment outside the house. That is, when they can afford it. People’s hard-earned cash isn’t going as far lately as many countries suffer from the worst inflation in decades.
There’s also the more technical element of yen depreciation, which ends up hurting Japanese companies whose primary business is conducted overseas. This leads into Nintendo’s latest regional breakout which saw 44% from The Americas, a number consistent with last year’s split. Then it’s Europe at 26%, up from 24%. It follows that Japan now represents only 20% of Nintendo’s business, down from 22%. This means that only one-fifth of its revenue is gained locally, meaning a weaker yen has a significant effect on its sales.
Now I’ll dig into product categories underlying Nintendo’s quarterly output. Software and related content comprised 56% of Q1 revenue, up from 53%. It follows that Switch hardware made up the remaining 44%, down compared to the 47% a year ago. What this indicates is hardware is losing ground at a more rapid pace than software, as the latter benefits greatly from ongoing events or downloadable content for legacy titles. If it wasn’t for the Switch OLED model, this skew would be even more towards software.
There are two charts in the below gallery showing the trend of quarterly revenue and profit, where we see the declined compared to recent years however still trending above that from fiscal 2019. Then there’s the two charts which smooth out these results by showing trailing 12-month figures, as I add up the latest four quarters. Trailing annual revenue is right near $13 billion for Nintendo, severely hampered by the yen weakness when converted to dollars. Operating income over the last year is $4.43 billion. This helps keep the overall business in context, rather than focusing strictly on shorter-term movement.
Using these recent annual figures, I’d like to compare Nintendo’s results to industry peers in Tencent, Sony and Microsoft. I will preface this by saying the conversion from yen is really taking a toll on Nintendo and Sony right now. Tencent’s $33 billion in annual gaming revenue is untouchable, though it’s the only one of these that hasn’t reported this quarter and I expect it could decline. Sony’s $21 billion from PlayStation is up next, then Microsoft’s Xbox revenue of $16.22 billion comes in third. If Microsoft’s accounted for Activision Blizzard, which it won’t until next year, it would rival Sony’s output. Which means Nintendo’s revenue is on the lower end at $13 billion. However, Nintendo’s $4.43 billion in operating profit over the last 12 months is higher than PlayStation’s $2.44 billion.
Focusing now on Nintendo’s console business, Switch shipped 3.43 million units globally during the quarter. That’s down 23% from the 4.45 million in Q1 of fiscal 2022. It’s the lowest number of Switch hardware shipments since 3.28 million in January to March 2020.
The base model felt the most precipitous drop, moving down 60% to 1.32 million of the quarterly total. Switch Lite posted a 48% dip, shipping 590K. Which means the Switch OLED model was the best-selling in the family during the last three months, moving 1.52 million boxes. That brings the lifetime total of just Switch OLED to 7.32 million since October 2021. This was precisely Nintendo’s intention, to shift buyers towards the fancy, higher-priced OLED.
Overall, Switch lifetime shipments now total 111.08 million. Compare that to lifetime sales of 89 million at this same time in calendar 2021. In an ironic twist, Switch is now the third home console AND the third portable device to pass the 110 million mark. PlayStation 2 and PlayStation 4 reached 155 million and 117 million, respectively. Separately, on the handheld side, Nintendo’s own Nintendo DS achieved 154 million while Game Boy/Game Boy Color settled at almost 119 million. For now, the PlayStation 4 is in the Switch’s sights, especially since Sony stopped reporting its prior generation hardware figures just this quarter.
As referenced in an earlier slide, sell-through to consumers for the quarter ending June declined for the second year in a row. While the company didn’t specify the exact amount, the trend-line is clear at this point in the life cycle. Especially given the tremendous impact from Animal Crossing: New Horizons back in March 2020, when sell-through of Switch consoles peaked.
Even amidst lower global hardware sales, Switch is still holding up among its counterparts in its biggest market. That’s according to the Q2 2022 report from industry tracking firm The NPD Group, an often cited source here at the site. Switch was the best-selling console in the U.S. during April to June when measured by units, and is still the year’s best-seller by this metric as I wrote earlier in the month. This dynamic makes sense given the Switch’s more attractive pricing and consistent availability at retail, plus supply challenges having an outsized effect on new generation consoles.
Switching over to Nintendo’s software sales for the quarter, it’s a bit brighter than its hardware counterpart. In that it didn’t see as big a decline from a unit standpoint.
Total game shipments in the period ending June declined to 41.4 million, down 9% from the prior year’s 45.29 million. Namely because it was a quiet time for those million-sellers: only four games sold this amount in the period alone, and none of them were from third parties. Compare that to 9 this time a year ago, 7 from Nintendo and the remainder from external partners. So, while there are select titles hitting this threshold, there were less of them amidst a sparse release calendar.
Because of this, lifetime software unit sales for Switch reached 863.59 million. That’s up from 892.18 million back in March, and 587.12 million back in June 2021. Might it cross 900 million by September? (Yes.)
Nintendo decided to kick off the summer with two sports titles during the three months ending June, launching both Nintendo Switch Sports and Mario Strikers: Battle League.
Nintendo Switch Sports scored 4.84 million shipments in its debut quarter. It’s tricky to compare this to prior mainline Sports releases, the last major one being Wii Sports Club in 2014, itself a remake of the original 2006 Wii Sports which launched alongside the ever-popular Wii console. There’s also Wii Sports Resort that released in 2009 at 1.61 million. We could also compare to Wii Fit, which started at 3.6 million. Any way you slice it, it’s a strong start to a title Nintendo expects could keep up momentum over time as more content rolls out.
Mario Strikers: Battle League spent less time on sale after its mid-June launch, shipping 1.91 million copies since. It’s the first mainline Mario Strikers title in 15 years, back when Mario Strikers Charged accumulated 1.71 million in its first quarter. That puts this latest game slightly higher than its predecessor’s initial sales.
The last flagship Switch game of the quarter was Fire Emblem Warriors: Three Hopes. This one hit market during the final week of June and is co-published by Koei Tecmo. Nintendo hasn’t publicly shared any results for it just yet.
As for earlier games, Kirby and the Forgotten Land continues its expansion, which is natural for Kirby. It’s scooping up sales left and right, amassing 4.53 million units to date after selling-in another 1.88 million in fiscal Q1. During its first 15 weeks on sale, it’s already sold-through over 4 million copies. That’s the best cumulative sales to consumers ever for the series, already outpacing the lifetime total of 2018’s Kirby Star Allies.
The best-selling first party Switch game list is unchanged at the top. Mario Kart 8, of course, somehow sold another 1.48 million to bring its lifetime total past the 46 million mark, settling at 46.82 million. Animal Crossing: New Horizons is at 39.38 million, while Super Smash Bros. Ultimate fought up to 28.82 million.
Fan favorite Ring Fit Adventure remains in the Top 10 best-selling on the platform, moving 450K units up to 14.54 million. It’s creeping up on a couple Pokémon games, I’d wager it can move into 8th place on the lifetime Switch sellers list by year-end.
Speaking of Pokémon, for 2022 to date in the U.S., Pokémon: Legends Arceus remains on the best-selling premium list, currently catching the third spot as of June. That’s according to The NPD Group, and it doesn’t even include the game’s digital portion. The aforementioned Kirby and the Forgotten Land and Mario Kart 8 are presently 8th and 9th, respectively.
Another growth avenue for Nintendo last quarter was digital sales of software, rising 16% to $679 million. That comes out to roughly 29% of its total revenue. Nintendo also shared that more than half of software sales are now digital, at 53% of the total. This is up from 47% last year, partially due to downloadable content like Animal Crossing: New Horizons Happy Home Paradise and the Nintendo Switch Online + Expansion Pack offering.
Unfortunately, there’s no new data on Nintendo Switch Online subscription count. The most recent update from the company was 32 million in September 2021. Management did state that sales from this online service are “showing growth,” just didn’t indicate by how much.
And as we’ve seen many times before, Nintendo’s engagement stats are lacking. Its “Annual Playing Users” metric is now up to 104 million, compared to 102 million last quarter. To me, this doesn’t mean much other than people that buy a Switch turn it on at least once in the last 12 months. Not the most descriptive of metrics.
It’s a decent start to the new fiscal year for Nintendo, seeing drops where expected on the hardware side and maintaining solid results for both new games and ongoing software spending. It’s too early for the forecast to change, even given the amount of uncertainty that exists on the supply side plus game release dates moving around soon.
“Due to delays in the procurement of components such as semiconductors this year, we have not been able to conduct production as planned.” management said. “However, we expect procurement to gradually improve from late summer towards autumn, giving us a clearer outlook regarding production for the remaining calendar year. In preparation for the holiday season, we will leverage appropriate means of shipment, and work to deliver as many Nintendo Switch systems as possible to consumers in every region.”
As a quick reminder on its guidance, Nintendo anticipates sales will decline in the single digits this fiscal year to roughly $12.34 billion at the current exchange rate, a figure in dollars that could improve if the yen improves. Operating profit is expected to take a bigger hit, dipping 16% to under $3.9 billion. Which would be the lowest result since the pandemic begin, yet still above levels prior to that point.
It’s on the conservative side, which is where I’m at as well. When there’s this many unknowns, both at a macro level and within the games industry, I tend to be cautious. I think it’s prudent for executives to do the same, especially for a company like Nintendo which isn’t as diversified as other consumer technology peers.
I continue to believe there won’t be any substantial new Switch iterations over the next few quarters. Instead, Nintendo should be working more on a successor than a model change. As for units, I’m reiterating my forecast of 20 million to 21 million which is a bit lower than Nintendo’s 21 million guidance. Right now, I’m slightly more bearish than management.
Another portion that Nintendo left unchanged is the guidance of 210 million software units selling in the year ending March 2023. Nintendo reiterated that stance, which I lean towards being a bit high unless a couple key titles hit market in this time frame.
Short term Xenoblade Chronicles 3 launch a few days back. Kirby’s Dream Buffet is a smaller title slated sometime this summer. Next up, there’s a pair of “third in the series” entries in Splatoon 3 and Bayonetta 3, launching in September and October respectively. Out of these, I’m way upbeat on the latter, the first mainline Bayonetta game since 2014.
I expect Pokémon Scarlet and Pokémon Violet, which are introducing all new pocket monsters, could potentially break records for early sales for the franchise on Switch and overall upon debuting in November. Granted, there’s been a lot of Pokémon lately. That won’t stop the series from selling, especially when there’s a new generation to collect.
The Legend of Zelda is the proverbial, hm.. wild card of the bunch. Will there be a new version of something like Windwaker soon? Might Nintendo put out a Switch version of Twilight Princess? That would be well and good, and certainly attract demand. It really comes down to whether the fabled Breath of the Wild sequel hits by March 2023. At least for now, it remains listed as Spring 2023 in Nintendo’s reporting. If I was to guess, I’m mildly confident it’s out this fiscal year.
Finally, there’s also Advance Wars 1+2: Re-Boot Camp and Metroid Prime 4. Both stayed as to-be-announced in Nintendo’s presentation. If anything, I’d wager the former has a better chance of hitting this fiscal year because it was scheduled to be out already. I don’t see the latter until the back half of calendar 2023, the earliest.
With its latest hardware sales milestone and a lot of good games before its life cycle ends, it’s still an exciting time to be a Switch owner. Especially for fans of JRPGs, sports games and Pokémon. Investors may be wearier, though shouldn’t let declines from all-time highs distract from Nintendo still being in its best financial shape since the Wii era.
Thanks for visiting the site and checking out this analysis. Feel free to drop a comment here or on social media. Enjoy the remainder of earnings season everyone!
Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.66.
Sources: Company Investor Relations Websites, The NPD Group.
It’s here. My first big recap article of this latest earnings season!
In case it wasn’t clear from my recent calendar post, late July signals the start of that season. Let’s kick it off with Microsoft’s fourth quarter fiscal 2022 results, which means I’ll cover both quarterly and annual figures. The more, the better!
This latest 3-month period featured somewhat mixed results that capped off a historic year for the company’s gaming division, where it achieved the best ever fiscal revenue for Xbox as a brand.
As anticipated, gaming revenue declined in the quarter ending June 2022, dipping 7% to roughly $3.45 billion. Like many results lately in the industry, it sounds a lot worse than it was. This number is the second best Q4 in Xbox history, trailing behind only last year’s massive $3.71 billion spike.
It’s one of those “good enough” scenarios, falling perfectly in-line with the company’s, and my, expectations of a mid-to-high single digit decline. Either a big beat or epic miss would have been much more newsworthy.
What’s important is the impact on fiscal year revenue from Xbox, which moved past $16 billion for the first time ever. That’s yet another all-time year for gaming at Microsoft. It’s the sixth straight fiscal year where Xbox has achieved record sales.
Underlying this growth was upward movement in Content and Services, which houses software sales along with the likes of Xbox Game Pass and cloud offerings. A constant here has been claims from management that Xbox Game Pass subscriptions have been steadily increasing, although the team still hasn’t shared an updated sub figure since the 25 million I wrote about back in January.
On the other hand, Xbox hardware sales have stagnated over the latest 12 months which resulted in a double-digit decline during the year. Which is curious, considering comments from Chief Executive Officer (CEO) Satya Nadella indicate the family of devices is selling better than ever.
“We’ve sold more consoles life-to-date than any previous generation of Xbox and have been the market leader in North America for three quarters in a row among next gen consoles,” Nadella said in his prepared remarks on the earnings conference call.
The declining revenue along with high unit sales indicate a major talking point to me: There’s a high proportion of unit sales coming from the lower-priced Xbox Series S. Which fits with mounting evidence and anecdotes that these are much easier to find and plays from a manufacturing cost standpoint because they are less expensive to make. Plainly, Microsoft and its suppliers can’t produce enough high-end Xbox Series X boxes to grow hardware revenue. I expect high input costs to continue, thus this trend will keep up into the new fiscal year.
Now I’ll dig into the underlying numbers and highlight key trends from this report.
Peeking first at the above slides from Microsoft, they show that 7% decline in quarterly gaming revenue which gets us to that $3.45 billion figure. Not bad considering Xbox achieved a best-ever Q4 result this time last year!
The main reasons for lower sales proved to be people spending less time and money on the platform over those 3 months, which impacted purchasing of both first-party and third-party software. The main bright spot was growth in Xbox Game Pass subscriptions. I’ll go more into these segments in a bit.
Expanding to a longer time frame is my chart, which shows 12-month trailing sales figures for the Xbox business unit. This shows a couple major points.
First, if we focus strictly on each fourth quarter, it displays that record high fiscal year from Xbox: $16.22 billion between July 2021 to June 2022 compared to the prior record holder of fiscal 2021 at $15.37 billion.
Subsequently, the full chart illustrates last quarter was the first decline for trailing annual gaming sales since back in Q2 of fiscal 2020. That initial rise back then corresponds to quarters leading into the start of quarantines during the pandemic, and the figure has since leveled off right around $16 billion lately. Still, it’s only a 2% decline from last quarter’s all-time best. Which is something I’ve expected given the strong prior years and macroeconomic forces at play, including inflation.
Note: These dollar totals are based on growth rates over the prior year. Microsoft has yet to publish its 10K filing, I’m confident the math will be very close.
Where does this put Xbox sales right now in comparison to major peers in the games industry?
Since Microsoft is the first to report, I’ll use the latest annual figures for the likes of Tencent, Sony and Nintendo. Tencent is the clear leader of the pack, aggregating to annual sales of $33 billion. Sony is up next, reaching $24.4 billion. That number will refresh later this week when the company reports on Friday. That leads into Microsoft’s $16.22 billion, which will increase when the Activision Blizzard deal closes to somewhere between $23 to $24 billion depending on redundancies and cost-savings. Lastly, Nintendo is close to Microsoft’s current figure, hitting $15 billion in yearly sales.
The main caveat I’ll note when comparing across the industry is how revenue is one of many metrics used to gauge financial strength. I’d prefer profitability when available, however Microsoft does not report this granularity for Xbox alone.
That doesn’t mean we can’t glean anything on Xbox’s profit contribution from this recent report. The broader segment of More Personal Computing (MPC) experienced an operating income decline of 5% as expenses rose 8%. Microsoft called out Windows, Search and news advertising as main drivers of this weakening profit dynamic, which indicates that gaming’s contribution likely remained consistent. Which I’d say is good news, especially for the cost of making consoles.
For the quarter ending June 2022, both of Xbox’s main segments of Xbox Content & Services and Xbox Hardware suffered declines. Although the latter was more precipitous, neither was very concerning to me because of where we are in the broader cycle plus supply conditions being nowhere near normal.
Starting with Content & Services, this segment contributed 6% lower sales than a year ago. Which, like total Xbox revenue, was in-line with the company’s guidance and my own expectations. This equates to $2.77 billion in Q4, implying it contributed around 80% of the total. Another way to consider this is 4 out of every 5 dollars spent on Xbox was on software, downloadable content, subscriptions and non-hardware purchasing.
In fact, the latest annual contribution from Content & Services is a big positive for the Xbox brand. It’s now above $12.5 billion, or 77% of the total, a dollar figure which is actually up 3% compared to the prior year. That means despite weakness in the fourth quarter, Content & Services had its best fiscal year in reported history.
The main factor, of course, is Xbox Game Pass momentum and its proven impact on spending habits for ongoing subscribers. While executives refuse to share anything beyond the 25 million figure, I estimate it’s closer to 30 million by now. I’d wager it hasn’t breached that milestone. Because otherwise Microsoft would have said so!
There’s also the element of offerings like Xbox Cloud Gaming plus recent partnerships with companies like Epic Games and Samsung. Microsoft is benefiting from rounding out its ecosystem play and expanding how and where people play, which has a tangible effect on revenue growth even as individual title sales may slow.
“We’ve partnered with Epic Games to make Fortnite available for free via browser,” noted Nadella in an example of this strategy. “Over 4 million people have streamed the game to date, including over 1 million who were new to our ecosystem.”
Hardware is proving to be the more challenging business line for Xbox, declining 11% in the quarter to under $680 million. That’s the second lowest output in the past seven quarters, no doubt impacted by higher margins and continuously low availability of the premium Xbox Series X version.
Along the lines of its counterpart, the annual numbers are more reassuring. Microsoft generated $3.7 billion from Xbox console sales in fiscal 2022, which is up from $3.2 billion previously. That’s a gain of nearly 16%. This is mainly due to excellent performance during the initial stages of this fiscal year, meaning hardware has trailed off recently.
That’s not to say demand isn’t there. It’s mainly that Xbox is selling its lower-priced SKU, which doesn’t boost the top-line as much. Last quarter, I posited that lifetime unit sales of Xbox Series X|S could be between 14 million and 14.5 million. After this latest period, I’m estimating it at 16 million to 16.5 million.
It’s unfortunate we don’t know for sure, especially since Sony and Nintendo are more transparent.
The last numbers I’ll cover before wrapping up are for Microsoft as a whole. The firm generated $51.9 billion in revenue, up 12%. Operating profit reached $20.5 billion, or an increase of 8%. Quarterly sales from Microsoft Cloud moved past $25 billion for the first time ever, jumping 28% year-on-year.
Focusing on the More Personal Computing (MPC) business unit, it was responsible for $14.4 billion in sales. This means Xbox, at $3.45 billion, made up almost a quarter of the segment’s total.
These results are quite staggering as the company benefited greatly from hybrid working models and enterprise cloud usage. Still, quarterly revenue and earnings both missed analyst consensus estimates.
During the full fiscal year, Microsoft posted $198 billion in revenue and $83 billion in operating profit. It’s hard to even understand these numbers!
Now to look ahead, let’s focus on gaming within the broader company.
According to Chief Financial Officer (CFO) Amy Hood, here’s the rundown of guidance for the first quarter of fiscal year 2023, which runs from this July to September. Note this does not include any impact from the Activision Blizzard deal, which it still expects to close by June 2023.
Gaming revenue is forecasted to decline in the “low to mid single digits” driven by a drop in first party software. Content & Services has that same exact guidance. Though the management team does anticipate Xbox Game Pass subscriptions will grow again and thinks Hardware will rise as well, albeit didn’t provide any more specifics.
Let’s assume “low to mid single digits” means a dip of 3%, that should be a good barometer. This implies total quarterly revenue from Xbox of around $3.48 billion, or the second best Q1 on record. Then, for both Content & Services to decline and Hardware to increase, the former must decline 4% or more. Which would follow that Hardware can increase a percent or two and the math still works out.
Personally, I do expect a slight decline in total Xbox sales during the current quarter. There’s a handful of major 3rd party titles, including a new Madden game in August, and Xbox Game Pass will certainly have a few great additions. It’s just last year’s high was powerful, it remains a tough comparison. I’m not so sure about Hardware gains, that’s where I’m skeptical. I’m expecting flat to slightly negative contribution there unless something changes with the split of Xbox Series S to Xbox Series X.
On a bit longer of a timeline, where’s the growth other than the traditional means? There’s the clear upside of bringing Xbox Cloud Gaming to other television brands outside of Samsung. Then the substantiated plus rumors of the team developing a dongle-like device like a Google Chromecast or Amazon Fire TV Stick. And, of course, people calling for Xbox to make a handheld now that both Nintendo and Valve have active portable gaming devices.
“As announced last year, we’ve been working on a game-streaming device, codename Keystone, that could be connected to any TV or monitor without the need for a console,” a Microsoft spokesperson said to Windows Central, who first reported on the cloud stick’s development.
“We are constantly evaluating our efforts, reviewing our learnings, and ensuring we are bringing value to our customers. We have made the decision to pivot away from the current iteration of the Keystone device. We will take our learnings and refocus our efforts on a new approach that will allow us to deliver Xbox Cloud Gaming to more players around the world in the future.”
So, I’m a believer in the expansion of cloud and whatever this Project Keystone turns out to be. I don’t expect the dongle to hit market this fiscal year, so that will impact future time frames. And I really don’t think an Xbox handheld fits with its direction, for a multitude of reasons that I’ll probably write about at some point! What I do expect is for Xbox Game Studios to ramp up its output in 2023, featuring titles like Starfield and Redfall plus some surprises too.
That concludes Xbox’s results this quarter. I’ll be back soon with articles on other major gaming companies, and updates on social media throughout the coming weeks. Thanks for reading and be safe all!
Note: Comparisons are year-over-year unless otherwise noted.
Sources: Company Investor Relations Websites, Windows Central.
