PlayStation 5 Lifetime Shipments Total 21.7 Million As Sony’s Gaming Business Sales & Forecast Decline in First Quarter 2022

July 29, 2022July 29, 2022 DomsPlaying2 Comments

After writing about Microsoft’s earnings earlier in the week, it’s now time to recap Sony’s fiscal year 2022 first quarter results.

Mixed as they were. Overall sales and profit grew for Sony overall, in part due to a weaker yen and boosts from the likes of Pictures and Music. However, sales within its PlayStation business declined amidst a variety of factors. This was mostly expected based on a high comparable last year, a limited suite of first-party exclusive games plus signs of a broader slowdown in discretionary spending.

Sony’s Game & Network Services (G&NS) segment sales declined in the low single digits over the last 3-month period, marking the lowest Q1 output since fiscal year 2019. Profitability took an even bigger hit, moving down almost 40%, due to general weakness in software plus increased spending on its pending projects.

Hardware proved to be the main bright spot, experiencing a double-digit revenue rise as PlayStation 5 reached 21.7 million in lifetime units shipped. That’s after selling-in 2.4 million boxes in the April to June period, up ever so slightly from last year’s 2.3 million.

Sony also reduced its financial forecast for the PlayStation business, revising downward both revenue and profit metrics while highlighting it expects a bigger decline in 3rd-party software sales. Profit will also be impacted by closing the purchase of Bungie, which went effective a couple weeks back.

Somewhat surprisingly, management reiterated its PlayStation 5 hardware shipment target at 18 million consoles for full year. I tend to disagree, personally. I believe Sony’s management is exceptionally bullish in the face of continued pressure from multiple angles, including supply chain and broader price pressure. I expect reduced guidance within the next two quarters unless input costs drastically improve.

“At this point in time, we have made no change to our 18 million unit sales forecast for PlayStation hardware in FY22,” said executives in the company’s prepared remarks. “But since we are seeing a recovery from the impact of the lockdown in Shanghai and a significant improvement in the supply of components, we are working to bring-forward more supply into the year-end holiday selling season.”

Time to move forward into recapping the underlying financials and make some fun predictions of my own!

First referencing the slides from Sony in the above gallery, these display how it generated $17.86 billion in revenue during the quarter which is up 2%. Operating profit rose 3% to $2.37 billion.

Both these set all-time highs for a first quarter, when measured in local currency. I’m using an average exchange rate to convert into dollars.

Given the environment these are very good, even if slight, gains. Granted, it’s worth reiterating how a weak yen will help top-line growth for global consumer companies like Sony.

That currency impact is on display within the PlayStation business, where its top-line would have been even worse if the exchange rate impact wasn’t as robust. Sony’s gaming division saw revenue dip 2% to $4.67 billion. With higher costs recently, operating profit declined a precipitous 37% to $408 million.

As the G&NS segment slide shows, the top-line revenue includes a substantial foreign exchange rate impact. It also accounts for a decline in both 1st and 3rd party software, a trend consistent with Xbox’s quarter as well. Compared to this time in 2021, people simply aren’t spending as much time or money on software and related content, even if they still have demand for hardware.

This exact dynamic is reflected in the product category slide from its supplemental information and the colorful chart I’ve compiled. Sales from Physical Software, Digital Software and Add-On Content all fell double-digits in the quarter. Hardware and Others, which includes peripherals and first-party game sales not on PlayStation platforms, boosted 12% and 28% respectively. Network Services is also proving to be resilient right now, moving up a modest 4%.

The two additional charts provided expand Sony’s reporting over the latest 12-month period, a method I use to smooth out results and provide better perspective on how companies are performing. It smooths seasonality and considers the last four quarters in aggregate. On the revenue side, PlayStation revenue topped $21 billion. Which is up compared to this time last year when it was $20.6 billion. Operating profit is also up year-on-year, from $2.33 billion in the 12 months ending June 2021 to $2.44 billion now.

What does that mean? Well, in the scope of recent years, these quarterly drops aren’t as damaging as they seem because the last few quarters have been abnormally high for the games industry. It’s that normalization I’ve written about before, as things like global inflation and folks seeking other forms of entertainment enter the picture.

In comparison to industry peers like Tencent, Microsoft and Nintendo, Sony’s current gaming output is near the top. Tencent’s recent annual figure is roughly $33 billion, continuing its reign as the biggest gaming company in the world by sales. Then Sony slots in next at $21 billion, which is lighter lately because it’s converted from a currency in free fall. Microsoft recently reported $16.22 billion, while Nintendo’s latest from last quarter is around $15 billion. The last two years have been a healthy time for the biggest publishers, manufacturers and developers, given all that’s happened, so some headwinds now are natural.

In addition to the financial metrics I love to highlight, Sony shared a variety of additional figures on software sales, digital contribution, services and engagement factors. All very important in gauging the well-being of PlayStation as a business.

First, I’ll talk software sales, the bread and butter of any gaming ecosystem. We already know that revenue from these sources declined in the double-digits, which is reflected in unit sales as well. Full game software on PlayStation platforms dipped 26% to 47.1 million units. Within that, first party titles (those published by PlayStation) lowered even further, down 39% to 6.4 million.

This period includes the second quarter for titles like Horizon Forbidden West, Gran Turismo 7 and MLB The Show 22. It could mean sales a few weeks out from launch are lower because people are playing less, which they are, or potential buyers are waiting until discounts because many new generation titles now start at a higher price point. Which extends the length of a title’s sales trajectory, though earns Sony less per unit sold over time.

Those gamers that are buying software for PlayStation platforms are doing so via its digital storefront more than ever. The number of digital game units sold compared to the total reached 79%, which ties an all-time high set back during the quarter between January and March 2020. To say it another way, fiscal Q1 had the same digital proportion as around the beginning of major quarantines during the early parts of the pandemic.

With respect to player count and engagement, it’s another mixed bag. PlayStation Plus memberships rose 1 million compared to last year’s number, currently reaching 47.3 million subscribers. It’s almost the same number as last quarter, down only around 100K. On the other hand, the key metric of Monthly Active Users (MAUs) showed weakness, going down from 105 million last year to 102 million now.

Sony’s explanation is that hours spent on the platform came in below estimates. Which fits with my expectation, given the release slate and other entertainment options.

“Total gameplay time for PlayStation users declined 15% year-on-year in Q1,” management said in its remarks. “Gameplay time in the month of June improved 3% compared with May and was down only 10% versus June 2021, but this is a much lower level of engagement than we anticipated in our previous forecast.”

This report also marks a bittersweet milestone, as Sony no longer reports hardware sales for the PlayStation 4. The 2013 console ends its historic run around 117 million units sold globally. That’s enough to be the second best-selling home console of all time behind only the PlayStation 2. Where does PlayStation 5 stack up against its predecessor right now? Well, PlayStation 4 had shipped 25.4 million by its seventh quarter on market, meaning PlayStation 5 is lagging by almost 4 million units. Congrats to everyone behind the PlayStation 4, one of the highest-selling devices across the history of gaming.

Stepping back to take it all in, Sony’s fiscal first quarter results were mildly impressive overall while expected temporary weakness hit the PlayStation segment. Three months ago, I wrote about being more cautious than Sony’s management on its gaming prospects for the coming fiscal year. So, this sort of decline fits with that hypothesis, which I’m continuing here.

“The results forecast we announced in May incorporated an outlook for the growth of the global economy developed in January as well as major risks contemplated at the time of the forecast such as the direct impact of the situation in Ukraine and the impact of COVID-19 in China,” executives noted in the company’s prepared remarks.

The highest profile aspect of guidance is PlayStation 5 hardware, where Sony stubbornly kept the 18 million unit sales target for the year ending March 2023. While the next couple quarters will feature software titles that can be system-sellers, my problem is how chip prices could rise in the double-digits over the remainder of this year, and shutdowns or lockdowns will continue to impact part suppliers in the pipeline. My current target is between 15 to 16 million sold this fiscal year for PlayStation 5, implying it still has upwards of 13 to 13.5 million to go.

I also want to address a question that arose during today’s earnings call. Per a transcription from Video Games Chronicle, executives were asked about the potential for a price increase for PlayStation 5. That’s right, an increase! In fairness, Sony has recently bumped up prices for certain items in its local Japanese market plus Meta increased the cost of its Quest 2 virtual reality headset by US$ 100.

Even given the challenges faced by electronic manufacturers right now, I think it’s potential product suicide to drastically raise prices on consumers that are already cash-strained. Especially when it comes to the PlayStation 5, which already sees inflated secondhand prices amidst rampant scalping and limited inventories. Thankfully, Sony Chief Financial Officer (CFO) Hiroki Totoki agrees, for now, and dismissed the question.

On the financial forecast side for the remainder of this fiscal year, Sony raised its sales estimate by 1% while simultaneously reducing its operating income projection by 4%. For PlayStation alone, it revised revenue and profit downward by 1% and 16% respectively. That PlayStation profit reduction stands out the most, factoring increased costs associated with closing Bungie and Haven Studios acquisitions.

I’d say I’m cautiously bullish on this update. Even with big blockbusters like Madden 2023, FIFA 2023 and the highly-anticipated God of War Ragnarök on the horizon in the coming months, I’m worried about those diminishing engagement hours, lower spend on ongoing content and, of course, stagnating hardware production. Uncertainty is the enemy of those who make predictions, so I’ll keep my tentative outlook and say I think we might see lower results.

One wildcard in this scenario is PlayStation VR2, which has a launch roadmap that’s apparently in full swing according to PlayStation Blog. I continue to be shocked by how soon Sony is showing the device, which I didn’t expect for at least another year or more. It seems like it’s been in development for a long while, though release has been pushed back given the difficulties of supplying PlayStation 5, which is necessary to run the headset.

I don’t know if it’s a wise decision to spend on making and marketing both PlayStation 5 and PlayStation VR2 during a holiday season where costs are moving up across the board, and consumers can barely find the console at retail. Does Sony intend to launch the peripheral before March 2023 to meet that fiscal year deadline? Can it match the US$ 400 price tag I think it needs to be attractive? Based on where it’s at in development, I can see it. Even if I don’t necessarily agree with the move.

Thus concludes another recap session during this busy earnings season. Hop over to my full calendar for more on when other companies are reporting in the coming weeks, and thanks for taking the time to visit the site! Be safe, friends.

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported average conversion: US $1 to ¥129.4.

Sources: Company Investor Relations Websites, Getty Images (Photo Credit), Meta, PlayStation Blog, Video Games Chronicle.

-Dom

Earnings Calendar Jul & Aug 2022: Gaming, Media & Tech Companies

July 26, 2022 DomsPlaying2 Comments

What’s the best way to cool off when global warming has you melting?

Well, it’s probably being in the shade, staying hydrated, sitting in front of a fan or pumping up that air conditioner.

Personally, I’d add checking out the latest calendar here because the latest earnings season is underway!

As long-time fans of the site know, every quarter companies gear up to report their latest results and host conference calls with analysts. It’s going to be an eventful one for gaming, media and technology as consumer spending habits are shifting lately in light of rampant inflation and higher interest rates.

I expect to see mixed results and significant headwinds, especially among those companies with focused revenue streams. The past couple years brought substantial growth in these spaces and it’s time for mean reversion to take over. Though a general movement towards subscriptions and ongoing content will soften the blow of weaker product sales and supply constraints.

Going forward, I’ll have some articles up the next couple weeks summarizing results for select companies in these sectors. For now, see the above image or the Google Sheets link below for a rundown of earnings dates for 100 companies. I’ve also quickly highlighted three companies to watch in this current environment.

Note that for international firms, days are displayed in local time zones based on investor relations announcements. Stay cool and be safe everyone!

Working Casual Earnings Calendar Jul & Aug 2022: Gaming, Media & Tech Companies

Apple Inc (AAPL): Thursday, July 28th

The world’s largest consumer electronics company is always a barometer for spending habits, and it reports third quarter fiscal 2022 results this week. This is a major moment to see how much inflation has affected buying and upgrading of Apple products, namely its flagship iPhone line. Analysts expect upwards of $82 billion in quarterly revenue, an increase from $81.4 billion, however earnings-per-share could decline from $1.30 to $1.16. Executives told the market last quarter to expect anywhere between a $4 billion to $8 billion hit on revenue due to supply challenges and China lock-downs. It still sounds like demand for its main products are keeping up, plus other areas like services will boost contributions. I’m usually upbeat that Apple will report better-than-expected profitability, and that’s no different this time around. Which would signal some resilience in consumer buying in what might already be a recession for certain economics, including the United States.

Unity Software Inc (U): Tuesday, August 9th

Gaming engine maker Unity reports fiscal 2022 second quarter results in early August, and has been in the news a lot lately. Not for the best reasons, I might add. It’s been very active in the merger and acquisition department for a while now. Last year alone, it purchased Parsec and Weta Digital. This year, Ziva Dynamics. Then its biggest deal is a controversial one in that it’s merging with digital app monetization company ironSource as announced two weeks back. This deal values ironSource, which has an infamous reputation for software with a history of being flagged as malware, at $4.4 billion. As part of the interview circuit alongside this deal announcement, CEO John Riccitiello had some choice words for developers making games without also considering how to monetize, calling them “f***ing idiots.” He has since apologized, of course, but the original sentiment expressed by the person who runs this company is likely to cause hesitation among those creators using Unity as a platform after the merger occurs. Not to mention, the company isn’t profitable right now so this is an important time from a financial standpoint as well.

NetEase Inc (NTES): Mid August

Mobile publisher and internet tech giant NetEase hasn’t reported a specific date yet, though it will announce 2nd quarter of fiscal 2022 release around the middle of next month. The massive Chinese is making key moves lately, notably expanding into the West by creating its first U.S. studio in Jackalope Games along with a development team called Jar of Sparks out of Seattle. It’s also partnered with the likes of Warner Bros, Microsoft and Blizzard on experiences targeting audiences around the globe. Battle royale slasher Naraka: Bladepoint launched in late June. And although it’s after the latest quarter’s close, it brought Blizzard’s Diablo Immortal mobile title to China just this week, a game that exceeded 20 million downloads before even entering this massive market. It’s also been operating locally in a more constrained environment for releases, though will benefit from the government’s easing restrictions. As some other companies saw declines, NetEase generated double-digit revenue and profit growth last quarter, driven by online game sales.

Sources: Company Investor Relations Websites.

-Dom

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

April 29, 2022 DomsPlaying4 Comments

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

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

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

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

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

Have a great season all, be safe and well!

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

Sony Corp: Tuesday, May 10th

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

Ubisoft Entertainment: Wednesday, May 11th

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

NVIDIA Corporation: Wednesday, May 25th

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

Sources: Company Investor Relations Websites.

-Dom

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

February 2, 2022February 2, 2022 DomsPlaying

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

An eventful one, it was.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Be safe and well. Thanks for reading!

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

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

-Dom

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

January 25, 2022January 26, 2022 DomsPlaying

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

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

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

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

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

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

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

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

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

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

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

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

Sources: Company Investor Relations Websites.

-Dom

2021 Year-in-Review: Biggest Trends in Gaming, Tech & Media

December 31, 2021December 31, 2021 DomsPlaying2 Comments

2021 was defined by a handful of major trends in gaming, technology and media, many of them centered around workplaces, culture and emerging technologies that even those involved might not fully understand.

It was another year of buzzwords within tech, as often happens. Cryptocurrency. Blockchain. Non-Fungible Tokens (NFTs). Meme Stocks. Metaverse. Within gaming, people spoke out against corporate toxicity and harassment. Mobile’s growth trajectory withstood as other areas cooled from the peaks of quarantine times, especially amidst supply concerns for hardware. For social media, the infamous Facebook Files, TikTok’s dominance and Twitter’s CEO departure hit the headlines.

Time to dig into six of the most significant trends of 2021. Fair warning, it’s not all good!

Workplace Culture & Whistleblowing

This story is a holdover from my 2020 list, and it’s only gained in relevancy this past year. More people were louder than ever on toxic cultures in the workplace or poor actions by executives, especially at big gaming publishers and social media giants. Over the summer, both Ubisoft and Activision Blizzard faced lawsuits related to discrimination and institutional harassment. Employees banded together to fight back against executives, to varying degrees of success.

Then there’s Facebook, now Meta, which saw a September leak reveal its self-realization of the harm it can cause younger users and its contributions to extremist activities worldwide. Not to mention the potential for fake research and incorrect information across its platforms. This is all thanks to whistleblower Frances Haugen and media investigations.

2021 did see some bright spots in these areas. Vodeo Games was the first gaming company in North America to formally unionize in December. Just recently, an IGN article detailed slightly improving conditions at Bungie while the Washington Post reported Riot Games must pay $100 million to settle a 2018 discrimination lawsuit. Toxicity at work and a “boys club” mentality is still prevalent in many industries. The hope is the more people talk about it, the more bad actors depart and these companies clean up their acts.

GameStop & Popularity of Meme Stocks

In a perfect swirl of internet camaraderie, corporate resistance and capitalist tendencies, 2021 became the year of the “meme stock” highlighted by names like GameStop and AMC Entertainment. At one point in January, GameStop closed at almost $350 per share. It opened the year under 20 bucks.

The frenzied swings of stocks like these are mainly due to online communities, especially Reddit’s WallStreetBets, forming narratives and collectively pushing them to historic highs. They tend to target securities with major short interest, which means a lot of other people were betting their prices would decline, to cause a massive upsurge in buying which skyrockets a stock’s intermittent value.

It’s the type of trend amplified these days when everyone is online, with entire sub-sections of the Web dedicated to chest-puffing against retail investors and major investment firms. A super curious phenomenon, especially when the underlying companies aren’t changing in value. It’s all about the market’s short-term perception. We couldn’t go a few days at times in 2021 without hearing about meme stocks, even from people who aren’t usually interested in social media or digital communities.

The Unavoidable Blockchain, Cryptocurrency, NFTs & Play-to-Earn

Apologies. I had to bring it up. It’s everywhere nowadays in tech, impossible to avoid plus impregnable for even those well-versed in the sector.

And that’s the undying realm that is blockchain, crypto and NFTs. Terms that you’ve probably heard numerous times now, whether via online posts or bros at a dinner table, and still find them wholly impenetrable. That’s because they are, plus it’s only getting worse.

These topics aren’t necessarily new at all. And I won’t dig into the specifics, that information is out there. Technologies surrounding digital ownership of goods, alternative forms of currency and decentralized systems have existed for years. It’s just the loudest right now. That’s primarily because of the astronomic popularity of NFTs, which are mainly used to make (or even launder) money under the guise of owning rights to a digital image.

Environmental impact, regulatory ramifications and opportunities for theft take a backseat to profitability in these realms, especially as company management teams start thinking of ways to capitalize and integrate into their products. Within gaming, that’s where areas like “Play-to-Earn” pop up in a ploy to entice people to play for the sake of generating money as opposed to leisure. Ubisoft introduced Quartz within its floundering Ghost Recon Breakpoint while developer GSC Game World tried, and failed, to incorporate NFTs in the forthcoming STALKER 2. This trend isn’t going anywhere, so I wager it could be a part of my 2022 predictions thread soon.

The Buzzword That Is The Metaverse

Every now and again, those at the top run a term into the ground to where it feels old before it’s even realized. That’s how “Metaverse” felt in 2021, a somewhat nebulous term combining aspects of augmented spaces, virtual reality, video connectedness and low quality online avatars to create a digital world where people can exist alongside one another. Lately it’s used by various companies claiming each wants to build the singular place where people can get together virtually.

Shoot. Facebook even changed its name to Meta in an attempt to monopolize the term.

This metaverse is another concept that’s not necessarily brand new. Just that lately, corporations see a clear opportunity to monetize a fancy buzzword and layer it on top of their existing brand identity. The aforementioned Meta, Microsoft, Apple, Alibaba, Epic Games, Roblox, Niantic and plenty more are using this phrase to describe its virtual offerings.

But what the heck is a metaverse and which will be the “one” that works a la the OASIS from Ready Player One? Well, many experts (and writers like yours truly) don’t think it’s possible. The space is too fragmented, companies are inherently driven to differentiate services rather than collaborate and getting all users to agree on a single platform is impractical. If 2021 is any indication, there will be much smaller, less defined metaverses competing for our virtual selves.

Hardware Shortages, Supply Chain & Product Delays

The global semiconductor shortage that heightened in 2020 partly because of coronavirus shutdowns had the carry-on effect of slowing all sorts of consumer industries including consumer technology, video game hardware, mobile phones and automobiles. Anything that used a chipset was more expensive to build and took longer to distribute in 2021, leading to supply shortages everywhere.

A major result is this combination of low availability and launch delays. Using the example of gaming consoles, the latest generation of PlayStation 5 and Xbox Series X|S were notoriously difficult to purchase this past year. When retailers did have inventory, it was short-lived and prone to scalping. Then there’s the console delays, including Valve’s Steam Deck and Panic’s Playdate handheld among others were pushed into next year.

Even so, there’s data showing resilience propped up by demand. Sony said PlayStation 5 shipments reached upwards of 13.3 million as of the quarter ending September. Sell-thru to consumers is higher than PlayStation 4. Nintendo Switch reached nearly 93 million sold lifetime, even as the company reduced its annual target for this fiscal year. Microsoft doesn’t share public figures, though anecdotally and from U.S. data, the Xbox Series S is more prevalent likely due to lower input costs. The NPD Group shows hardware sales up 20% in the U.S. through November 2021, even if compared to late console generation cycle the prior year. Unfortunately, many covering the chip industry think the supply chain issues will continue through 2022 and even beyond.

Mobile Driving Increased Global Games Industry Spending

Revenue numbers are in for the global games space, where overall value was up slightly in 2021 on a year-over-year basis. That’s attributable to gains in mobile and digital spending, while areas like console and personal computer (PC) dipped overall. Digital skew leads the charge as downloadable games plus additional content increased in traction and revenue generated.

According to Newzoo, worldwide video games industry value surpassed $180 billion in 2021. That’s up 1.4% since 2020, a durable figure that illustrates consistent spending on mobile experiences. Mobile as a category contributed $93 billion, showcasing 7% growth. Console was the next highest grouping, declining 7% to $50 billion. PC gaming reached $37 billion, down around 1% since 2020.

Overall, digital sources contributed 93% compared to 91% during 2020. Within console gaming, 77% was digital which is up from 72% prior year. Within mobile, Garena Free Fire led downloads with nearly 230 million. Subway Surfers and PUBG Mobile rounded out the Top 3, with 181 million and 172 million respectively. From a revenue standpoint, Honor of Kings, PUBG Mobile and Genshin Impact drove mobile sales.

On Twitter, Genshin Impact was the most-discussed title around the world followed by Final Fantasy XIV and Apex Legends. Looking at Google’s analytics, PopCat, FIFA 22 and Battlefield 2042 were the most searched. The top-selling games in 2021 for the U.S. as of November were topped by the two most recent Call of Duty titles, Black Ops Cold War and Vanguard in that order, followed by Madden NFL 22.

This recap of an eventful, and sometimes disheartening, year marks the first Year-in-Review post for 2021. Pop over to the megapost for more categories!

Sources: Christian Wiediger (Photo Credit), GamesIndustry.Biz, IGN, Marvin Meyer (Photo Credit), Meta Inc, Newzoo, Wall Street Journal (Photo Credit), Washington Post, Ubisoft.

-Dom

2021 Year-in-Review Megapost Is Now Live

December 30, 2021January 3, 2022 DomsPlaying

The end is only beginning!

2021 is coming to a close. The past 12 months fit with the recent trend of years being difficult, trying and, very occasionally, magnificently rewarding. The ongoing coronavirus pandemic, which feels like it both started yesterday and has always been a part of our collective lives, continues as the biggest headline, impacting both our physical well-being and mental health. I like to believe humanity is strong enough to push through it, even if 2021 rebutted this theory at every turn.

Major news stories included insurgents at the U.S. Capitol, President Joe Biden’s inauguration, the Ever Given disrupting global commerce by getting itself stuck in the Suez, COVID booster availability amidst the widespread omicron variant, an Olympics like none other, plus some rich people throwing money around so they could go to space.

Closer to home within gaming, technology and media, this Year of the Game Delay brought about some of the best content and worst trends ever. The Facebook Files and social media whistleblowers. GameStop as the premier meme stock with the rise of Reddit traders. Executives repeating the word “metaverse” as many times as they possibly can while pretending it’s a new topic. The inscrutable nuisance that is the non-fungible token (NFT) alongside the burgeoning, disheartening “play-to-earn” gaming trend.

Of course, there’s the omnipresent semiconductor shortages and supply chain issues making it near impossible to find a PlayStation 5 or Xbox Series X. Unless perhaos you happen to be a bot or scalper? Nintendo Switch’s new OLED model launched in the fourth quarter, cementing the hybrid handheld’s momentum on the charts. And, most importantly, the loud, ongoing relevance of challenging toxic workplace culture and harassment practices at companies including Ubisoft, Bungie and Activision Blizzard. (It’s a shame Bobby Kotick still has his job as I write this.)

Over the next few days, I’ll be recapping the year that was 2021. Once I wrap up writing about the biggest trends, it’s time to showcase what I thought was a consistent year in media and gaming especially, with a variety of high quality AAA titles and indie projects. First I’ll talk about larger publishers, then the more tight-knit indie scene before the grand finale: The ten best games I played all year.

This post acts as the central point for all things Year-in-Review here at Working Casual. Our categories are:

Biggest Trends in Gaming, Tech & Media

Five Most Impressive Gaming Companies

Independent Studios of the Year

Dom’s Top 10 Games of the Year

Set the bookmark and check back often! Happy Holidays and a safe, healthy New Year to all!

-Dom

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

October 29, 2021October 29, 2021 DomsPlaying

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sources: Microsoft, Nintendo, Sony.

-Dom

Microsoft’s Xbox Division Records Best First Quarter Sales Ever

October 27, 2021October 27, 2021 DomsPlaying2 Comments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Comparisons are year-over-year unless otherwise noted.

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

-Dom

Earnings Calendar Oct & Nov 2021: Gaming, Media & Tech Companies

October 25, 2021October 25, 2021 DomsPlaying

It’s that season.

No, not just for pumpkin spiced lattes. (Though I don’t know about you, I wouldn’t turn one down.) It’s that time again for earnings!

The financial festivities for gaming, media and technology companies began recently and continue through the next few weeks as they report the latest business updates and field questions from analysts. It’s the third quarter for many, as you’ll see clearly on the enhanced version of my calendar that began including fiscal period last time around.

Notice the list is sorted by Earnings Date then alphabetical order. While I do my best to collect calendar information, there’s a certain number of companies without dates. Here many are reporting around mid-November based on historical trends. I may update the calendar throughout the quarter, depending on time constraints.

In addition to sharing this trusty calendar, I plan to write articles about select major companies like Microsoft, Nintendo and Sony. So stay tuned for further updates once the reports start rolling in soon.

One thing to note: The dates are presented in local time zones, as that’s what companies will have at their websites.

Check above for the big ol’ image and below for a Google Doc with easy access to investor sites directly. I know the imagine in particular is a large one, mainly because coverage is approaching a hundred companies now. Best way is to save it and magnify that text!

After the link, check out quick descriptions of three stocks on my radar for October through November. Be safe out there, all!

Working Casual Earnings Calendar Oct & Nov 2021: Gaming, Media & Tech Companies

Netflix, Inc: FY 2021 Q3, Tuesday, October 19th.

The first here actually already reported last week, and that’s Netflix. Partly because the platform is slowly moving into gaming though mainly because I just had to know the impact of South Korean sensation show Squid Game on its bottom line. (I haven’t actually seen it yet, no spoilers!) Executives said a staggering 142 million member households watched the title during its first four weeks on the streaming service. Legitimately the most popular show Netflix has ever produced. It was #1 ranked in 94 countries and has spawned infinite memes, comedy skits and Halloween costumes. Driven by this unprecedented performance, the company recorded revenue growth of 16% to $7.5 billion and an operating profit increase of 33% to $1.8 billion during Q3, gaining 4.4 million net paid memberships to now total 214 million accounts. The team also made intriguing comments on its earnings call around an expansion into gaming, where it criticized advertisements and in-app monetization models saying it plans to give a “much easier, direct enjoyment experience with games.”

Sony Corp: FY 2021 Q2, Thursday, October 28th.

Sure, maybe this is a bit of a cop out. I’ve naturally covered Sony here and on social media a bunch, and I’m honestly always looking forward to its reports. Yet this is a most notable second fiscal quarter for the Japanese consumer tech giant. It marks the third full quarter of sales for PlayStation 5’s first year on market. (ALREADY?!) It also follows a record-breaking first fiscal quarter ending in June for its gaming division revenue. Sony announced in July that it reached a milestone for PlayStation 5 hardware figures, moving past 10 million units to consumers which makes it the fastest-selling console in its company history. During its prior earnings call, executives claimed it’s secured enough chips to reach its target of at least 12 million more before March 2022. While the holiday quarter is certainly most important in driving towards this target, the three months ending September will give an indication if that momentum is true. Especially given that it seems like the hardware isn’t readily available at retail. Not only that, we’ll hear updates on PlayStation Plus memberships, software copies and the key digital ratio of game sales, plus revenue and profit metrics of course. I’m anticipating a blockbuster quarter on the financial side.

NetEase Inc: FY 2021 Q3, Mid-November.

Second to only Tencent in China’s massive gaming market, NetEase isn’t as common a name in the industry despite its size, tech conglomerate status and diverse lineup especially on the mobile side. In recent years, the Hangzhou-based company has been making similar moves as its main competitor to expand into more markets with personnel hiring and key investments in Destiny creators Bungie, French studio Quantic Dream and renewing a partnership with Blizzard. Its latest outright acquisition is Grasshopper Manufacture announced just last week. Led by Goichi “Suda51” Suda, the Japanese team previously owned by GungHo is responsible for titles like No More Heroes, killer7 and Let It Die. There’s also reports that, Toshihiro Nagoshi, formerly of Sega and the creator of Yakuza, is finalizing a deal with NetEase. The company has experienced double-digit sales growth for each of the first two quarters of this fiscal year, so we’ll hear its latest update in a few weeks and thoughts from executives on its broader expansion strategy.

Sources: Company Investor Relations Websites, Den of Geek (Image Credit).

-Dom

Working Casual

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