Nintendo Reports Second Best First Quarter Results Since 2009

The last of the three major gaming console manufacturers to report this season is Nintendo, as it enters a new fiscal year starting this April to June.

And it was a very good one, as has been the trend for the company lately in this latest generation. Even if not quite as good as its ridiculously impressive highs during last year’s corresponding period.

The Japanese hardware designer and software developer reported first quarter net sales around $2.91 billion, 10% lower than last year’s Q1. Operating profit reached $1.08 billion, a decline of around 17% leading to a lower margin as well.

Sure, both of these are technically down. Expanding to a historical context shows it’s actually exceptional performance in the scheme of things. Other than the unprecedented time last year, it’s Nintendo’s best first financial quarter in just over a decade. Operating income in particular effectively matches the level of fiscal 2009 Q1. Nintendo is proving resilient, especially on the hardware side, as Switch sales are translating to software performance for both new and catalog titles.

When it comes to Switch hardware it remains, quite simply, on fire. The console sold-in 4.45 million Switch units in Q1, a dip of roughly 22% year-on-year though twice as much as the same period in fiscal 2020. Lifetime shipments of the hybrid console now total 89.04 million. This means it’s past yet another milestone in the industry, moving past the 87.4 million at last count for Sony’s PlayStation 3 since its launch back in 2006.

Lately Nintendo has also reported sell-through to consumers, which represents actual ownership in households. As of June, Switch family sell-thru hit 85 million consoles. This is up from 81 million in the quarter ending March 2021. That means upwards of 96% of all shipments have been purchased at retail to date.

The most attractive part of owning Nintendo’s hardware is, of course, to play games that aren’t available anywhere else. Nintendo reported both overall sales movement plus shipments for three main first party releases during the quarter. New Pokémon Snap, a spin-off in the series that’s all about photographing the famed pocket monsters, reached 2.07 million after launching in late April. (Note: This does not include sales from Japan, where it’s published by The Pokémon Company.) In comparison, its 1999 predecessor Pokémon Snap hit 1.5 million units by the end of its first year on sale and is estimated at 3.63 million lifetime.

Separately, the latest sports entry Mario Golf: Super Rush released on June 25th so it had less than a week on market by the end of this reporting period. Shipments over that time hit 1.34 million copies. Going way back, the original Mario Golf on Nintendo 64 is estimated at 1.47 million during its entire product life. Basically, Mario Golf: Super Rush is estimated to already be the second-best seller in franchise history. It’s a lower result for a mainline Mario game, though notably great within this particular spin-off series. That’s the power of the Switch right now, with the caveat that it’s difficult to track exact sales for older titles.

The last new launch of the first quarter was the role-playing game Miitopia on May 21st. The remastered version of the 2017 3DS game of the same name barely crossed the million mark, reaching 1.04 million. This is almost as much as the original scored during its first three years at 1.18 million, another rough estimate of course.

I’ll note that there was no word on June’s Game Builder Garage game creation software. Since it didn’t make the million seller list, have to assume it’s currently below that milestone.

Now, read on below for much more analysis behind the numbers plus forecasts going forward. It’s totally worth it. I wouldn’t lie to you. Plus, who doesn’t love charts!

Whew. I know it’s a lot of data. Let’s break it down.

First, broadening the time frame helps put the aforementioned $2.91 billion in net sales and $1.08 billion profit from operations during Q1 into perspective. Taking a peek at the quarterly revenue chart, this illustrates how it’s the second best 1st quarter since the $3.82 billion generated in April to June in 2008. Around the height of the Nintendo Wii’s popularity, a common trend we’ve seen before the darker days of the Wii U era starting in 2012.

Expanding the revenue chart using trailing 12-months smooths out performance and exhibits a familiar sort of trajectory. That’s $15.56 billion in aggregate sales during the last four quarters. This particular figure hasn’t been above $15 billion during a first quarter for Nintendo since fiscal 2010.

Flipping to profitability, it’s even more impressive how Nintendo is managing costs lately. Quarterly operating profit is nearly the best it’s been in a decade. Other than last year’s peak during the pandemic, the last time operating income reached $1 billion in a Q1 period was that Wii era of fiscal 2009. Trailing 12-month profit hit $5.56 billion or so during June, and this time that’s the best first quarter since the same time during 2009.

On regional splits, the Americas hit nearly 44% of overall dollars sales for Nintendo. Europe up next at 24%, then Japan around 22%. Which means the proportion of sales outside of Japan is upwards of 78%. This is a notable shift towards the Americas, which itself made up 38% last year.

For a quick quarterly comparison amongst its peers, Nintendo had the lowest revenue during Q1 under that $3 billion mark yet is more profitable than its Japanese counterpart in Sony. The PlayStation brand achieved $5.62 billion in revenue while Microsoft generated $3.74 billion. Still, Sony’s gaming profit of $760 million is notably lower than Nintendo’s. Which makes sense, since Sony is starting off a new console cycle with the PlayStation 5 while Switch is further along, has lower marketing spend and production costs.

Underlying this latest success is Switch hardware momentum, however what in particular is driving it? It’s actually the base model’s popularity.

Out of the 4.45 million consoles shipped during Q1, a figure down 22% as I noted earlier, 3.31 million were that standard edition. This is notable because it’s actually above the high comparable period last year when this figure was 3.05 million. Worth mentioning this model was more supply-constrained back then, according to comments from executives. Switch Lite is behind the overall decline, dipping to 1.14 million from 2.62 million. That’s a serious 57% drop, no doubt impacted by many portable buyers last year attracted to Animal Crossing: New Horizons on the go.

Even more than four years after its launch, Switch hardware sales are still just as much dictated by supply because audience demand is consistent.

Oh. Here’s a pretty wild stat I thought would be fun. Nintendo is, of course, the top-selling hardware manufacturer ever globally. It passed an absolutely wild margin this past quarter: 800 million console units sold since debuting the Nintendo Entertainment System (NES) in 1983. This of course includes handhelds, otherwise Sony’s PlayStation brand would be outpacing when using home consoles only. It’s still a fun big fact after this latest success!

Diving into updated software sales, Nintendo said 45.29 million copies sold on Switch during Q1 as compared to 50.43 million last year. Around a 10% decline, primarily due to the overwhelming success of the new mainline Animal Crossing a year ago.

Nintendo shared that nine games sold a million or more copies on Switch during April to June alone, seven of them first party exclusives. That overall figure is the same number as this time last year.

Apparently everyone can’t stop buying Mario Kart 8 Deluxe as it remains the top-selling Switch game ever, moving up almost 1.7 million to 37.08 million units lifetime. It’s like Nintendo’s Grand Theft Auto, except without the theft part. Animal Crossing: New Horizons retained the second spot, reaching 33.89 million units after selling 1.26 million in the quarter. Rounding out the Top 3 is still Super Smash Bros. Ultimate at 24.77 million to date after moving just under a million in Q1.

One major mover on the legacy side has been Ring Fit Adventure, originally out in October 2019. Last quarter, it joined the 10 million sold club. It has since moved 1.15 million more, pushing up to the 10th spot on Nintendo’s Switch best-sellers list at 11.26 million units. People are certainly exercising their right to spend!

Nintendo doesn’t often share much on the third-party side. Management noted that “sales of titles from other software publishers continued to grow steadily” without much context. Based on anecdotes around the industry, there’s certainly a Switch effect especially for independent publishers.

What about digital contribution, an area where Nintendo has lagged the broader industry? Well, it’s down 25% to $685 million, equating to roughly 24% of total quarterly dollar sales. Nintendo’s proportion of digital sales on the software side was 47% in Q1, meaning just under half of total dedicated platform software units were downloaded. Compare this to 56% last year, a somewhat inflated figure by retail store closures, buy-at-home convenience plus Animal Crossing: New Horizons skewing results.

“Although sales declined for downloadable versions of packaged software on Nintendo Switch, sales remained steady for download-only software, including indie titles,” said the leadership team. “In addition, Nintendo Switch Online sales also increased.” Though the company didn’t share any more specifics on the Nintendo Switch Online service. The last paid subscriber count was 26 million around September 2020.

Taking a look ahead, Nintendo reiterated its forecast for the current year when it comes to financial performance, consoles sold and software units. As often happens during its first quarter, especially as this management team leans towards a conservative nature.

During fiscal 2022, net annual sales are still expected to be $14.4 billion while operating profit will be at $4.5 billion. These would be down 9% and 22% respectively, yet still a major result looking back many years. Switch hardware guidance is flat at 25.5 million for the year, implying that Nintendo needs to ship just over 21 million more during the next three quarters.

So where would that put Switch lifetime compared to other consoles? Well, Nintendo Wii is next up. There’s a notable gap right now, the Switch’s 89 million compared to nearly 102 million for Wii. If Nintendo hits this year’s forecast, it will clear that milestone easily by the holiday quarter. And I fully expect that to happen, boosted by easing supply considerations plus the Nintendo Switch OLED Model iteration. In fact, I believe Nintendo’s hardware guidance is conservative and expect executives to move it up next quarter. I’ll stick to my 28 to 29 million estimate for the year ending March 2022, which I established a few months back.

Nintendo currently expects to ship 190 million software units on Switch this year, down from 231 million in the year ending March 2021. Again, that will be beat. Software slate in the near-term is a bit light, driven by last month’s The Legend of Zelda: Skyward Sword HD then WarioWare: Get it Together! in September. Then fan favorite Metroid Dread and party game compilation Mario Party Superstars are scheduled to kick off the holiday quarter in October plus two Pokémon remakes in Brilliant Diamond and Shining Pearl will bolster the schedule in November.

The company lists Splatoon 3 and the sequel to The Legend of Zelda: Breath of the Wild for calendar 2022, one of which could be January to March. Well, probably not Zelda if I’m being honest.

Regardless, it’s going to be another quite incredible year for the company’s bottom line and console sales in particular, unless some sort of unforeseen disruption hits on the production side. Even without the existence of that “Switch Pro XL” model, a rumor that’s been going on for what feels like years now. Maybe the “insiders” will be right eventually. Me? Catch me here, looking at the numbers.

Thanks as always for reading and be safe everyone!

Note: Comparisons are year-over-year unless otherwise mentioned. Exchange rate is based on reported conversion: US $1 to ¥ 110.74.

Sources: Aishah Mulkey (Photo Credit), Celene on ResetERA, Microsoft Corp, Nintendo Co Ltd, Sony Corp.

-Dom

Earnings Calendar Jul & Aug 2021: Gaming, Media & Tech Companies

It’s the first month in the back half of 2021. Which means the days are scorching here in the Northern hemisphere, the Olympics have started up and, naturally the most importantly of all, earnings season is kicking off!

I know it’s been another challenging year for many. Adjusting to a world where certain governments are opening up economies while others are reverting back to lock-downs under threat of new coronavirus variants. It’s still not ideal to travel or see family members. So I hope my coverage of gaming, media and technology companies here and on social media can be a much-needed distraction while also being informative.

And it’s been a busy one in these sectors. Consolidation, regulation, streaming, work-from-home, automation, extremely important discussions on workplace culture and other macro trends are all impacting these businesses this year. Especially in the games industry, which has seen its audience base grow over the past year and continues to grow rather than stagnating.

As usual, my handy calendar will keep everyone organized during a busy season of numbers, graphs and business chatter. It’s slowly approaching a hundred companies, and you’ll notice a brand new feature this time around: a field showing which fiscal quarter is being reported!

I figured that would help, as companies have different financial calendars so it’s easy to lose track of when the year ends. Let me know what you think, and if it was a good idea.

So save down the above image above for safe keeping, use the link below to a Google Doc with all this information for easy access to investors site then check further down for three companies on my radar in July and August. Thanks for hanging out, be safe all!

Working Casual Earnings Calendar Jul & Aug 2021: Gaming, Media & Tech Companies

Microsoft Corporation: FY 2021 Q4, Tuesday, July 27th.

After a rousing showing during the Electronic Entertainment Experience (E3) and a record-breaking June 2021 in the domestic hardware market, Microsoft and Xbox are back reporting full fiscal year results shortly. Overall Microsoft is a juggernaut in both cloud and enterprise software, so I expect beats all around. When it comes to gaming revenue specifically, it should see double-digit annual growth and eclipse $15 billion in sales. I’m also hoping to hear from CEO Satya Nadella on updated Xbox Game Pass subscriptions. At last count, the company itself said this figure was 18 million way back around December 2020. Although media reports have pegged it upwards of 22 million as recently as April. I think there could be 25 million or more paying subs right now, driving the division’s ecosystem play and steady hardware results for the tech conglomerate.

Activision Blizzard, Inc: FY 2021 Q2, Tuesday, August 3rd.

Honestly, I didn’t want to list Activision Blizzard here. I’m not sure I’ll even cover the company this quarter. Its financials interest me a whole lot less when its executives and leadership team have been in the news for all the wrong reasons lately, and it’s quite sickening. The State of California’s Department of Fair Employment and Housing is suing the company after a multi-year long investigation into harassment, mistreatment, abuse and even assault of women and minority staff members at the American publisher. Leaked internal emails have shown mixed messages from management, including a tone deaf note from Executive VP of Corporate Affairs Fran Townsend claiming the lawsuit “presented a distorted and untrue picture of our company.” Over 2,000 brave employees have signed a petition against leadership’s responses and many Blizzard folks are staging a walkout this week. Analysts and investors need to press the top brass on what they intend to do to change the company’s “boys club” culture. Perhaps even call for resignations. Sales growth and profit margins don’t mean anything if people aren’t safe and supported in their careers.

CD Projekt SA: FY 2021 Q2, Thursday, August 26th.

Another company that has occupied the wrong type of headlines for a while now is Polish developer and publisher CD Projekt, mainly for its bungled launch of Cyberpunk 2077 to hit financial deadlines and executives making promises that weren’t kept. I’ve been following it from a distance because I wanted to see results instead of listening to how management claimed they would fix the broken game, and after a number of updates, it’s apparently in a good enough state for Sony to allow it back onto its PlayStation store. Kudos to all the hard-working employees that worked on a game that was already released, even if the PlayStation 4 and Xbox One versions are still not up to par. In Witcher news, the company held WitcherCon in early July. As part of this digital fan experience, the company announced a second season of Netflix’s The Witcher series and that The Witcher 3’s next generation update will, allegedly, be out this year. I’m eager to see the impact of Cyberpunk’s relisting on its bottom line, though I don’t expect its financial performance to suffer nearly as much as its reputation.

Sources: Bloomberg, Company Investor Relations Websites, Netflix (Image Credit), The NPD Group.

-Dom

Sony & Microsoft Gaming Division Sales Launch To New Record Highs

Two of the biggest gaming console manufacturers and technology companies reported recent financials back-to-back, and both of them set their own impressive new records in the process.

Sony, purveyor of PlayStation among other consumer electronics, reported full annual results earlier today while Microsoft and its Xbox division shared fiscal year 2020 3rd quarter figures yesterday.

(I hope you knew that because you checked out my latest earnings calendar already!)

Each report proves that traditional gaming is as popular as ever, racking up record sales figures and providing other insights into how the biggest players in the industry are reacting to the pandemic in terms of customer demand, part supply for hardware and development activity for software.

For instance, both companies just reported the highest ever revenue from their respective gaming divisions. Sony’s Gaming & Network Services (G&NS) segment, which houses its PlayStation brand, achieved annual sales above $24 billion for the first time ever. Microsoft has a shorter history in games, which means it’s been reporting figures over less time. Even so, it also reached a significant milestone with Xbox gaming revenue for the past 12 months moving past $15 billion for the first time since it began reporting that particular split.

Time to take a look into the reports, highlighting the records and notable figures along with trends that I spotted while reviewing the stats. And get ready for some super fun charts!

Overall for the year ending March 2021, Sony reported nearly 9 trillion yen in consolidated revenue, which equates to roughly $82.8 billion. This is an increase of 9% since 2019, and a beat compared to analyst estimates. Biggest contributors were significant increases in the aforementioned G&NS plus Financial Services unit while Sony Pictures saw declines due to lack of theatrical performance in a tough ongoing environment for films.

Yearly operating income for the firm as a whole rose 15% to 972 billion yen, or just under $9 billion. Driven by performance in PlayStation, Electronics Products & Solutions in addition to Music segments then offset by decline in Imaging & Sensing Solutions. While a double-digit increase, profit actually missed analyst estimates for the year.

(Yup. Sony has a lot of businesses.)

Focusing within G&NS i.e. the PlayStation division, this is the firm’s leading contributor in recent years. Total sales reached 2.66 trillion yen or roughly $24.44 billion, which is up 34% since last year and a record result for this unit during a full year. Operating income jumped 44% to $3.15 billion. This is the first time this particular business moved past $3 billion in annual profit, marking yet another record high.

Of course underlying these results is the PlayStation 5 launch back in November, a console which shipped 3.3 million units during its second fiscal quarter on market. That brings lifetime shipments after two quarters to 7.8 million, Sony’s best console launch ever as it surpasses the 7.6 million of PlayStation 4 back in fiscal 2013. I had estimated between 3.1 and 3.3 million PlayStation 5 shipments for the quarter, so it’s in-line with expectations and honestly an impressive result given the chip shortage and production constraints plaguing console makers right now.

“Supply has not been able to keep up with extremely strong demand for PlayStation 5, although constraints on the supply of components, especially semiconductors, is expected to continue this fiscal year,” said Chief Financial Officer Hiroki Totoki on the Sony conference call.

As presented in the below gallery, the notable part of this particular console transition for PlayStation is how well growth across all sub-categories is contributing to ongoing performance during a time where older hardware isn’t moving as many units and new consoles are constrained on the supply side of the equation despite massive demand. Digital Software and Add-On Content are both up 44% while Hardware jumped 39% in 2020, showing how players are consistently supporting software offerings and additional expansions or downloadable content on both prior and current generation.

Signaling an industry shift that’s been ongoing for a while and accelerating during the pandemic is digital split for PlayStation software, which hit an all-time best 65% compared to 53% in 2019. Implies nearly 2 out of every 3 games purchased for its platforms are now downloads.

Full game software unit sales reached 339 million during fiscal 2020, up from 276 million in 2019. Out of that, first party titles published by Sony contributed 58.4 million compared to 49.2 million last year. Signaling an industry shift that’s been ongoing for a while and accelerating during the pandemic is digital split for PlayStation software, which hit an all-time best 65% compared to 53% in 2019. Implies nearly 2 out of every 3 games purchased for its platforms are now downloads.

Swapping to user engagement, subscribers to Sony’s PlayStation Plus service rose 15% to 47.6 million. Monthly Active Users (MAUs) across all of PlayStation Network dipped a bit, now at 109 million compared to 114 million a year prior. Still, the rise in PlayStation Plus paid memberships is a more significant contributor to the gaming segment, pushing Network Services sales up 14% year-over-year.

Turning back to PlayStation 4 hardware for a moment, Sony shipped 1 million units of this now legacy console in its last fiscal quarter ending March. That brings lifetime sales to just over 116 million, maintaining its second spot on the all-time home console sales list. While this slowing momentum implies that it will never come close to the lofty 155 million lifetime sales of the historic PlayStation 2, it proves that there will be sparse demand for the immediate future and could realistically hit 120 million next fiscal year at this pace.

Looking into the future for Sony overall, the company starts its fiscal year 2021 sales forecast at an 8% increase over 2020 while projecting a 4% decline in annual operating income. The sales increase should be bolstered by a bounce-back for Sony Pictures plus continued performance of PlayStation and electronics categories. Profit will be negatively impacted by higher costs in development of games alongside other divisional declines.

In terms of gaming, Sony guidance shows a similar theme for the PlayStation business in that sales should increase 9% yet profit will show a bit of weakness, dipping 5% year-on-year. Hardware unit sales will naturally increase as supply broadens, as long as the global chip shortage doesn’t get any worse. And manufacturing costs will lighten as the production process is refined. Though consistent with the recent trend of game delays, Sony expects 3rd party games to contribute less in fiscal 2021 and that includes the coveted add-on content revenue stream.

In terms of a hardware unit projection, Sony executives played a bit coy on the conference call. CFO Totoki reiterated the expectation to ship “above 14.8 million” PlayStation 5 units during the fiscal year from April 2021 to March 2022. Which would bring lifetime to 22.6 million, ever so slightly above its predecessor’s 22.4 million during the same time frame. Basically saying to anticipate a slight increase this early in the generation. My first full fiscal year estimate is 15 million, with a tilt towards the downside if supply doesn’t strengthen quickly enough.

On the software front, Sony is intent on investing in its studios plus other partnerships as has been its successful strategy. The way PlayStation creates value and entices people to buy its hardware is by launching high quality games, especially from those talented studios that it owns. Naturally, it’s pumping dollars in order to attract talent.

“In terms of costs, we plan to increase development, personnel and other costs in our in-house studios by approximately 20 billion yen ($184 million) year-on-year as we further strengthen our in-house produced software,” said Totoki. “To enhance our software offering, we intend to continue investing in or partnering with external studios in addition to aggressively investing in our in-house studios.”

And I tend to agree with Sony’s overall and PlayStation guidance, though I remain tentative on the supply side of hardware and on first party launches like Horizon Forbidden West and God of War Ragnarok despite this strong ongoing investment. For example, I don’t project that both of these major titles will be out in the next 12 months. I expect only Horizon to release in fiscal 2021, perhaps even during the January to March time frame as holiday still seems like a tight deadline.

Moving to Sony’s main competitor in the traditional console space at least in Microsoft, it’s obviously a much broader company with enterprise cloud and Azure driving a bulk of its performance. So unfortunately it shares less details on its gaming results. Still, there are significant statistics and executive quote that guide towards where it’s at in its play towards ecosystem and services alongside its Xbox Series X|S console launch.

Note that these are quarterly numbers and compared to a year ago unless otherwise specified, since Microsoft reported its third quarter fiscal year 2021 figures.

In the quarter ending March, the company overall generated nearly $42 billion in revenue which is up 19%. Operating income increased 31% to $17 billion. It beat analyst estimates on both sales and earnings-per-share. Intelligent Cloud revenue reached over $15 billion, as the foundation of Microsoft’s business.

The Xbox division falls under its More Personal Computing (MPC) segment, which itself contributed $13 billion in sales and operating profit hit $4.6 billion. These 9% and 27% increases respectively were bolstered specifically by gaming results.

Drilling down into gaming alone, total revenue was $3.53 billion during January to March. That’s the first time a 3rd fiscal quarter recorded over $3 billion in sales, and a staggering increase of 50%. It accounted for 27% of revenue from MPC segment, a strong moment for a business that’s accelerating especially given the success of Xbox Game Pass and certain first party games like the ever-present Minecraft.

Xbox Content & Services, which basically means software plus subscriptions, alone grew 34% due to strength across the board in third party titles, Xbox Game Pass subscriptions and first party software.

“People are turning to Xbox more than ever to play and chat with friends, and we saw record engagement this quarter, led by strength on and off-console,” Chief Executive Officer Satya Nadella noted on its conference call. “With Game Pass, we are redefining how games are distributed, played, and viewed. Just last week, we added cloud gaming via the browser, expanding our reach across PC and mobile.”

What this quote and the results reveal is that Microsoft’s holistic strategy of attracting players to its ecosystem as opposed to a singular device is starting to pay major dividends. The team at Xbox is indifferent as to where someone plays its game or accesses its services. Just as long as they do.

Curiously, Nadella and team didn’t share new figures for Xbox Game Pass subscriptions. Back in January, Microsoft reported that the figure was 18 million. Rumors are that this figure is upwards of 23 million as recently as last week. Which would be consistent with Nadella’s remarks and recent Xbox Content & Services double-digit growth.

On the Hardware side, revenue more than tripled since this time in 2020 due to the start of a new generational cycle. Demand for Xbox Series X|S is vastly outstripped supply, the latter of which seems to be more significantly constrained than even the PlayStation 5.

Chief Financial Officer Amy Hood echoed the sentiment. “In Gaming, we continued to see record engagement and strong monetization across our platform, as well as demand that significantly exceeded supply for our Xbox Series X and S consoles,” she said.

Still, Microsoft isn’t sharing unit sales figures or giving any indication other than growth statistics for its hardware sales. It’s tricky to estimate, though friend of the site and Niko Partners Analyst Daniel Ahmad estimated that the Xbox Series X|S shipment figure was at 3.5 million last quarter. That would be slightly less than its predecessor the Xbox One, which did 3.9 million in its launch quarter.

I won’t put an exact number on it because it would be a complete guess, though wouldn’t be shocked if Microsoft shipped a couple million last quarter given the current inventory environment.

Annual gaming revenue jumped 46% since this time in 2020 plus achieved a record, the first time ever that yearly gaming sales at Microsoft crossed the $15 billion milestone.

Above gallery contains relevant information here, plus a handy chart that I’ll get into now.

Expanding to a longer timeline, gaming sales for Xbox totaled just over $15 billion for the trailing 12 month period ending March 2021. Annual gaming revenue jumped 46% since this time in 2020 plus achieved a record, the first time ever that yearly gaming sales at Microsoft crossed the $15 billion milestone. The recent direction under Head of Xbox Phil Spencer’s leadership of expanding to new audiences and devices isn’t just a concept, it’s proving to be a sound business decision.

One caveat here is that the $7.5 billion acquisition of ZeniMax happened during the quarter, so its contributions began in early March. Which definitely allowed for its record results. And is exactly why Xbox paid handily for it.

In terms of Xbox software, performance of first-party titles came in above expectations. Minecraft in particular, which recently saw MAUs increase 30% to 140 million. That’s an absolutely ridiculous number of people signing in every month on average for a game that’s over a decade old. Microsoft also shared that Minecraft creators have generated $350 million from over a billion downloads of mods, add-ons and experiences on the platform over the years.

Moving towards the future and guidance, Microsoft provides a specific number for its three broad segments then general comments about individual businesses. MPC revenue next quarter will be upwards of $13.6 billion and $14 billion.

“In Gaming, we expect revenue growth in the mid-to-high single digits. Significant demand for the Xbox Series X and S will continue to be constrained by supply,” said CFO Hood. “And on the strong prior year comparable, we expect Xbox content and services revenue to decline in the mid-to-high single digits.”

This is similar across both Microsoft and Sony, in that consumers will be buying as many pieces of hardware as they can produce. I’m most intrigued by software output for Microsoft, which I think will be quite stagnant until Halo Infinite later this year (which I’m fairly confident won’t be delayed again). So the question comes down to first party output combined with third party partnerships for Xbox Game Pass, the latter of which has been strong lately with games like Outriders and MLB The Show 21.

I anticipate Xbox Game Pass partnerships and console demand to drive results into the last quarter of Microsoft’s fiscal year ending June 2021, as opposed to any significant first party output. Minecraft will always be consistent, at least. Additional titles from its owned studios will come later, especially with Bethesda now incorporated into the mix and Halo Infinite looming as the flagship Xbox console exclusive later in calendar 2021.

Thanks to everyone for stopping by and checking out this analysis. Company reports have more details if so inclined, and I’m always active on Twitter for conversations around these results or my predictions. Would be interested to hear your perspective as well. Be safe!

Note: Exchange rate used for Japanese Yen to U.S. Dollar is as of today. 0.0092 JPY to 1 USD.

Sources: Daniel Ahmad (Niko Partners), Jez Corden (Windows Central), Microsoft, Newsweek (Image Credit), Sony.

-Dom

Earnings Calendar Apr & May 2021: Gaming, Media & Tech Companies

We’re a month into the second calendar quarter of the year, which means another earnings season has started!

In my largest list yet, above is the current schedule for a variety of public companies across gaming, media and technology spaces reporting fiscal results this month and next. It’s a handy way to keep track of the season, which I’ll update periodically based on new announcements.

There’s also the link below, which goes to a Google Doc displaying the same list for easy access to investor relations websites. I recommend bookmarking one of these, perhaps even both, though I admit I’m a bit biased! It’s the way I keep tracking of everything, so I love sharing it with everyone each few months.

Lastly, I briefly list out three stocks to monitor closely this quarter with some details on their situations. Whether established companies or new listings, Working Casual can cover them all. Which ones made the highlights? Check below the fold to find out.

I hope you and your families are well and on the road to vaccination, if not already there. Be safe!

Working Casual Earnings Calendar Apr & May 2021: Gaming, Media & Tech Companies

Nintendo Co., Ltd: Thursday, May 6th

Early in May, Nintendo reports its latest annual results where we’ll hear about hardware, software and mobile results for the full year through the end of March. Last quarter, the Japanese gaming giant raised targets for sales and profit guidance along with Switch hardware units for the year to 26.5 million from 24 million. CEO Shuntaro Furukawa and the executive team are known lately for erring towards conservative guidance, so I expect a beat on all fronts. As it usually does, Nintendo will also share updated lifetime hardware sales for Switch, which will blow past 80 million and should eclipse both PlayStation Portable plus Game Boy Advance lifetime figures, in addition to a variety of major software title updates. In a move much decried by fans, its Mario 35th Anniversary celebration ended abruptly in March with a handful of titles going off market, a timing that’s curiously the same as its fiscal year end date. Combining that boost with steady hardware momentum and software output, it should be the best year for Nintendo in at least a decade.

Capcom Co. Ltd: Monday, May 10th

Yet another Japanese publisher that’s been very active the past 12 months is Capcom, one of the most consistent in the industry in terms of pace and quality of releases. It will also share annual results this quarter in mid-May. The company’s flagship this year so far is Monster Hunter Rise, which launched late in March on Nintendo Switch and surpassed 5 million units shipped in just over a week. Back catalog sales for Resident Evil franchise in anticipation of Resident Evil Village next month plus legacy Monster Hunter World titles along with supplementary launches sprinkled throughout 2020 will drive results to what I expect to be solid growth. Speaking of Resident Evil Village, I’ll keep a close eye on guidance for next year since the first mainline game in the series since 2017 releases during its fiscal first quarter, just before another Switch exclusive in Monster Hunter Stories 2: Wings of Ruin. I’m still maintaining my prediction for a return to the fighting game genre from Capcom as well, so will this be the year?

Roblox Corporation: Monday, May 10th

In one of the most sought-after gaming and tech IPOs this year, Roblox soared well above its listing price during its trading debut in March. The unique gaming platform targeted at a family audience is now trading at a market valuation of over $41 billion ahead of its first public earnings report for Q1, a capitalization comparable to an established industry peer like Electronic Arts (EA). Roblox is a distinct company in the sector, hosting more of a diverse avenue for content creators and game makers than an individual publishing or software development, and it’s available on nearly every mobile or PC device plus Xbox consoles. What it comes down to ultimately is its underlying financials and the ability to support this lofty valuation. In its March prospectus filing, the firm said daily active users rose 85% to 32.6 million and revenue reached just under $1 billion, an increase of 82% in 2020. Downside is costs outstripped sales, which means it’s currently recording a more significant loss than prior years. I’m skeptical of this current market cap given this situation, though I do see future growth potential if it’s able to monetize that growing user base.

Sources: Company Investor Relations Websites, The Sun UK News Company (Image Credit).

-Dom

Earnings Calendar Jan & Feb 2021: Gaming, Media & Tech Companies

The first big season of 2021 is now underway.

No, not Winter. (Or Summer, depending on when you are in the world.) Not the NFL playoffs. Not even WandaVision. It’s earnings season!

That fun quarterly time when we get to talk more about companies and their underlying businesses, how their performance rolls up to industries at large. With a focus here on various gaming, tech and media stocks, naturally.

First is the calendar image, as you’ll see above. Coverage is approaching 80 companies in total. Easy for pulling up as a quick reference on the schedule. I keep it open all season. I’ll also update it periodically, since some companies haven’t announced yet.

Then there’s the link below, a Google Doc with this same information and easily accessible links to each website. Very handy.

It’s a busy one, so let’s get right to it. Bookmark that calendar, check the doc and then read about a few companies on my radar in the upcoming weeks. Thanks for reading!

Working Casual Earnings Calendar Jan & Feb 2021: Gaming, Media & Tech Companies

Sony Corp (SNE): Wed, February 3rd

When Sony shares its fiscal third quarter numbers next week for the period ending December, it will be the first that includes revenue from sales of the PlayStation 5 after its November launch. The Japanese consumer tech leader already said its next generation console had the biggest global commercial start of any PlayStation box in its history, a sentiment echoed by December’s U.S. monthly report from NPD Group which I wrote about previously. Despite tight supply and limited inventories, I expect a strong showing in shipments that translate to yet another stellar quarter for its gaming division. Upwards of 4.5 to 5 million, slightly above the 4.5 million of PlayStation 4. The PS5 will also benefit from software copies sold, with the stronger launch lineup compared with its main competitor in Microsoft’s Xbox Series X|S. Hardware and game sales will be impressive, as will its digital ratio which I expect to be around 50%.

Huya Inc (HUYA) & DouYu International Holdings (DYOU): Mid Feb & March, Respectively.

Back in October, these two Chinese powerhouses in game streaming and esports announced the intention to merge effective sometime in 2021. A deal worth an impressive $6 billion, with Tencent of course steering the merger resulting in a healthy share of the new entity. Lately, local officials are taking a closer look at the potential for creating a monopoly in the space, perhaps delaying its completion or even disintegrating the partnership entirely. Neither company has announced a date for their respective financial report plus the latest we heard was that the deal is in its regulatory phase. I anticipate a firm update in the next couple weeks, and I’m betting that China’s government ends up deeming it fine to proceed.

GameStop (GME): March.

The biggest gaming retailer in the U.S. has been in the news a lot, for a variety of reasons. Earlier this month, it announced a shake-up in its Board of Directors, resulting from a major investment from Chewy.com founder Ryan Cohen later last year. And as recently as last week, its shares began surging due to a wild scenario of a Reddit forum full of traders fighting short-sellers (investors bet on a stock’s price going down) in one of the most bizarre stories you’ll read about Wall Street all year. Thing is, its underlying fundamentals haven’t changed. Partly due to the pandemic and mostly because of mismanagement, it’s closing a thousand stores in the first quarter of 2021 alone. Holiday sales were mixed, even with the new generation of consoles. It will stay in business in the short term, perhaps with a better direction with the new look of its Board. But there’s a limited upside to brick-and-mortar retailers that aren’t able to adapt in the digital age.

Sources: CNBC, Company Investor Relations Websites, NPD Group, Pan Daily (Image Credit).

-Dom

2020 Year-in-Review: Biggest Trends in Gaming, Tech & Media

Year-in-Review is here!

Across gaming, technology and media, 2020 both continued major trends from last year and introduced select new ones, most notably around how people consume entertainment and work together during a global pandemic.

Some are common across all, such as digital distribution, streaming platforms and direct-to-home content delivery systems gaining steam this year. Consolidation continued with mergers and acquisitions both big and small, changing the way these industries look. Mobile gaming reached new records, plus targeted a more core audience via traditional genres and gameplay systems.

Then there’s the new or unique, in a year during which two major video game console manufacturers somehow launched new products. Game developers worked in even more difficult circumstances to finish projects in time for ship date. Similarly, 2020 brought ongoing reports of difficult workplace conditions, whether due to sexual harassment or “crunch” culture.

On the media side, topics of political policy, privacy matters and general regulation for social media platforms. Within technology, remote work and virtual collaboration redefined how people work, likely forever.

Let’s now dig into the biggest trends of 2020!

Digital, On-Demand, Streaming & Cloud Everywhere

The transition to digital as the primary distribution platform, whether in gaming or otherwise, is essentially complete with the surge of online storefronts and streaming services that deliver entertainment direct to folks in their homes or wherever on their devices. This was inevitable in my opinion, comparable to the music industry, though perhaps accelerated by the coronavirus pandemic quarantining millions upon millions of (often bored) people.

In particular, 2020 will be remembered as the time where film distributors embraced the direct-to-home model, with major releases such as Universal Pictures’ Trolls World Tour, Disney’s Mulan and WB’s Wonder Woman 1984 all hitting on-demand services simultaneously as their theatrical debuts. This is a tectonic shift within an industry historically reluctant to move away from its traditions.

Comparatively, this model is now solidified within gaming. Xbox Game Pass is the best value around, now with beta access to its Cloud Streaming in select areas. Sony supplemented its PlayStation Plus and PS Now offering with a PlayStation 5 PlayStation Plus Collection catalog. Google Stadia, while not the most popular, is still active and attempting to attract an audience. Amazon introduced Luna, an intriguing new cloud player that will support “gaming channels” with Ubisoft already on board. NVIDIA’s GeForce Now is a go-to cloud technology for PC gamers. Steam and GOG, to name a few, are well-established online storefronts.

The games industry generated at least $175 billion in sales during 2020 according to Newzoo, an increase of 20% year-on-year. A staggering 91% of this is digital sources. It’s to the point where every major media or gaming company seemingly has or supports digital platforms, cloud streaming services or a combination of both. Taking advantage of the ability to reach people on whatever device they want to use. Oh, and the ongoing subscription revenue doesn’t hurt either.

The Next Game Console Generation Begins

Even as I write this, more than a month out from release, I’m still shocked that teams at both Microsoft and Sony were able to successfully launch new gaming consoles in the year that was 2020.

But that’s just what they did. And they deserve eternal kudos for it, considering the type of year it was. The Xbox Series X|S and PlayStation 5 debuted during the same week in November, each with its own distinct strategy to entice people to upgrade to the newest generation of gaming hardware.

Microsoft has expanded its Xbox brand to encompass all of its gaming ventures across console, computers and mobile, so it pushed a multi-tiered product launch with Xbox Series X at the upper end then the entry level-priced Xbox Series S to hit both ends of the market. Xbox overall is now about ecosystem, with its push towards a library of games via Xbox Game Pass and backwards compatibility across software and accessories. Even without a major exclusive like the delayed Halo: Infinite, Xbox Series X|S still boasted the most successful commercial launch in brand history.

Sony’s bread and butter is the core audience, thus its more traditional approach with a bevy of new software titles coinciding with the PlayStation 5’s start. Even if one of them was a shorter “expandalone” in Marvel’s Spider-Man: Miles Morales and another was a remake in Demon’s Souls, Sony fans (and scalpers alike, unfortunately) came out in droves to scoop up the new hardware. Sony said demand for PS5 was “unprecedented,” resulting in the fastest-selling global console launch in history. It also set a new record domestically for launch month dollar and unit sales, outpacing its predecessor in both instances.

This is really just the start for both boxes, notably in short supply during this holiday season. While production will ramp up in 2021, software offerings will as well. It’s an exciting time to be a console owner, or someone that covers the industry to see where sales and consensus go in the future.

Toxic Workplace Environments & Crunch Culture

This important and timely topic deserves an article unto itself, and it’s a trend I hope will ease in the future. It’s not exclusive to gaming by any means, though 2020 brought with it several high profile releases from some of the industry’s most notoriously difficult workplaces, which is why it’s currently front-of-mind. (As it really should be always.)

“Crunch” culture is a part of game development, like many other workplaces. Where people labor for long hours, even weekends, leading up to the completion of a project. It’s the type of tricky situation that impacts both physical and mental well-being yet is hard to avoid for many, since it’s so embedded, so the trend of reporting on this from media outlets is welcome. Places like Take-Two’s Rockstar Games, Sony’s Naughty Dog, Ubisoft and CD Projekt Red plastered the headlines as current and former employees spoke about what it’s like to work under these kinds of conditions.

The latest of these is CD Projekt Red and its downright ugly release of Cyberpunk 2077 this month, a game that was clearly rushed to meet financial deadlines as I posited in my recent piece. This was after executives said there wouldn’t be mandatory crunch. Management held an internal Q&A session shortly after launch, proving that it should have opened feedback loops well before then for its employees. (I’ll note that CD Projekt is fairly compensating employees for their hard work. Rightfully so.)

Similarly, Ubisoft was in the spotlight due to accusations of sexual harassment and general misconduct at certain of its global studios. Back during the summer, multiple people at the company raised abuse or harassment allegations towards fellow employees or even management. One of these resulted in the removal of former Chief Creative Office Serge Hascoët, another the firing of Assassin’s Creed: Valhalla original director Ashraf Ismail. Since then, CEO Yves Guillemot outlined a plan to address this sort of workplace toxicity. It’s yet to be seen if anything major will come of this, however getting rid of the worst offenders is a good start.

Record-Breaking Mobile Game Revenue

Mobile remained the hottest category in its industry last year, as it accounted for nearly half of the yearly global games market at a staggering $86 billion. An increase of almost 26% since 2019.

Leading the charge was a set of five titles each with more than $1 billion in sales, which is a record number for a single year. Two games published by Chinese tech and social media conglomerate Tencent topped the list, with PUBG Mobile at $2.6 billion then Honor of Kings eclipsing $2.5 billion.

Former cultural phenomenon Pokémon GO is still at it, clearing over $1.2 billion in sales. This makes 2020 its best year ever, bolstered by changes made to accommodate stay-at-home restrictions. Rounding out the billion-makers are Coin Master and Roblox, each with an impressive $1.1 billion.

In addition to these big money-makers, 2020 marked a time where mobile publishers continued to combine the model with more traditional gameplay mechanics. The highest profile of these was Genshin Impact, an open world action RPG from China’s miHoYo that’s generated almost $400 million within only two months of launch. Ubisoft’s Tom Clancy’s Elite Squad followed in the steps of Call of Duty: Mobile when it launched back in August, offering a first-person shooter experience comparable to console play on the go. There’s big money in mobile, especially if it can appeal to both casual and console/PC type audiences.

Push for Accessibility Features in Games

As someone who plays with inverted camera controls and often leverages subtitles, this trend is an especially important one. I’m thankful that creators are moving in a direction toward accessibility and inclusion, to where the industry and media at large are celebrating it.

This is a multi-step effort, one driven intrinsically by developers making games easier to play for people of all types, especially those that may have disabilities or other challenges. Flexible settings, camera controls, button mapping or even custom controllers, deaf/hard of hearing considerations, choices for those lacking motor skills, blind/low vision/colorblind filters. Basically, the more varied and considerable the options, the better.

Then, the industry overall is finally signal-boosting accessibility more by rewarding projects with the best options. This culminates in efforts like AbleGamers, Can I Play That, Steve Saylor (Blind Gamer) and award ceremonies specifically dedicated to these extremely important, I’d argue essential, features.

AbleGamers hosted its first annual Video Game Accessibility Awards in 2020. Both The Game Awards and entertainment outlets like IGN highlighted games like The Last of Us II, Grounded (boasting a genius filter to combat arachnophobia), Ghost of Tsushima, Fuser, Watch Dogs: Legion and HyperDot, all of which are setting the bar. One that I hope all creators hope to achieve.

Consolidation, Mergers & Acquisitions

It’s an ongoing move within a variety of spaces, though some of the biggest acquisition deals in gaming and technology took place during the last twelve months. And it’s not just the top-end, massive deals. Many smaller teams were picked up by the mid-tier of publishers, in particular the likes of Embracer Group, Zynga and Enad Global 7 (EG7).

Within technology, the big news makers were of course NVIDIA, AMD and Salesforce. NVIDIA’s purchase of Arm hit a whopping $40 billion in deal value, the biggest in the tech industry this year. Just behind that was AMD grabbing fellow semi-conductor manufacturer Xilinx for $35 billion, while Salesforce’s purchase of communication software firm Slack Technologies hit upwards of nearly $28 billion.

Within gaming, the hottest deal was Microsoft’s $7.5 billion acquisition of Bethesda parent company ZeniMax. It’s an industry-shaking event, where future Bethesda output like Starfield and the next Elder Scrolls project could very well end up exclusive to Xbox platforms. Within China’s local streaming scene, Huya and DouYu have a $6 billion merger planned for mid-2021 (where the resulting entity will naturally be majority owned by Tencent). Then there’s Electronic Arts making a $1.2 billion offer for racing developer Codemasters, outbidding fellow American publisher Take-Two Interactive.

Swedish publisher EG7 announced the purchase of a few notable teams including Daybreak, Zynga is taking over smaller mobile developers plus Embracer Group (THQ Nordic) is buying.. well, literally dozens of development studios or smaller independent companies.

After a super active 2020, will the pace slow down next year? Will Sony or Nintendo partake? Let’s just say I don’t see consolidation going anywhere, anytime soon.

Social Media Politics & Government Regulation

It was an election year in the U.S., one of the most significant in recent history I’d say. Which means social media took center stage in terms of discourse and advertising. This led lead players like Facebook and Twitter in attempts to both earn integrity and stop the spread of misinformation by instituting practices such as removing bad accounts, moderating posts and comments plus flagging threads that had questionable claims. Others like YouTube took a less proactive approach, opting to react to political outcomes after the fact.

Then there’s the similar theme around the U.S. government’s Federal Communications Commission (FCC) and Section 230 law, which in the past has allowed social media and modern tech companies to essentially avoid accountability when it comes to the content produced on their platforms. This stemmed from Facebook and Twitter restricting a NY Post story on now President-Elect Joe Biden.

Now the question becomes, where will Section 230 and responsibility of social media companies go under a new administration? It sounds like Biden opposes the law, though it isn’t clear what will happen if it’s adjusted or even repealed. Would self-regulation be better? I don’t know if that’s an effective option, since it wholly depends on media companies acting against their own self-interest of maintaining freedom of speech and keeping active users. Yet there’s also the responsibility to keep platforms clean of lies. There may not be a perfect outcome.

Remote Work & Virtual Collaboration in Technology

In terms of general technology trends this past year, the ramp-ups in remote working, artificial intelligence and the movement towards automation all defined 2020. These are all areas expedited by how companies operate during a global pandemic, which challenged the traditional model of office work and manual processes.

For those companies with the capabilities, remote work increased during the early days of the pandemic in March and April. For those without, they had to put them in place. Quickly. There’s the initial challenge of getting basic tech to workers, maintaining security at home, collaborating virtually and balancing family life outside of the office.

Flexibility in workspace proved to be a key topic across the tech landscape. Back in July, Google made a major decision on virtual working: Employees have the option to work from home until July 2021. During October, Microsoft announced that employees with the option to do so can stay home permanently, as part of its focus on both location and workweek hours.

Among many other things that 2020 changed, where and how people work is one of the most significant. You might even be reading this while working in your home office or bedroom, getting ready for a video call or virtual meeting. It’s my thought that this will become the norm, the pandemic was merely a catalyst.

There we have it: The biggest trends of 2020 completed. Which ones caught your eye? Any others you’d point out? Check back to the megathread for more Year-in-Review content. Thanks for stopping by!

Sources: Andrew Neel (Photo), Bloomberg, GamesIndustry.Biz, Kotaku, Microsoft Blog, Newzoo, NPD Group, Sam Pak (Photo), Sensor Tower, Sony Interactive Entertainment, Ubisoft Entertainment, Xbox Wire.

-Dom

2020 Year-in-Review Megapost Is Finally Here

It’s almost over.

The year unlike any other that was 2020 is, finally, coming to an end. To say it’s been a challenging, newsworthy one is an understatement.

While a tragic global pandemic, the voice of Black Lives Matter supporters and a major presidential election in the United States made headlines broadly, the games industry, modern media and new technology served as a much-needed distraction from the often disaster that was daily life.

And it turned out to be a historic one, especially for the games industry. A brand new console generation, Nintendo’s commercial success, the continued rise of digital distribution, cloud and streaming services, visibility of independent creators, questions around workplace culture and underdeveloped projects plus continued advancement in mobile titles blurring the line between tradition and future defined a tumultuous yet successful year for many.

This mega-thread will serve as the nexus for Working Casual’s year-end coverage across these various industries and topics. Over the course of the next week, I’ll be tackling the biggest 2020 has to offer. Trends, companies, indie teams and, of course, the best video games of 2020.

Here are the categories:

Working Casual 2020 Year-in-Review:

Biggest Trends in Gaming, Tech & Media

Five Most Impressive Gaming Companies

Independent Studios of the Year

Dom’s Top 10 Games of the Year

Check back often to see the links to new posts, and feel free to comment here or on social media once they are up. Wishing a safe and healthy holiday season to all, especially those on the frontline of the pandemic, and an incredibly Happy New Year!

-Dom

Earnings Calendar Oct & Nov 2020: Gaming, Media & Tech Companies

First off, no jokes. I hope everyone is safe right now, especially here in the States. I know the pandemic is impossibly tough and puts a strain on everyone’s physical well-being and mental health. But it’s still bad out there, and it will only get worse if we don’t keep up with the same precautions. Please be patient and wear a mask.

The upside is that right now, we can spend even more time playing and discussing games, media and technology. And it’s as good a time as any, with a new earnings season underway and new tech products right around the corner!

Which brings us to this: The Internet’s single biggest compiled list of of earnings dates for the most important companies in these sectors. Now covering over 75 stocks, including those from numerous markets worldwide plus a handful of newer listings this time around.

Check out the calendar above to save as a handy image or click on the Google Doc below, which has links to company websites with more information. It’s the only resource you’ll ever need to track these dates.

I’ll periodically update as others are firmed up, so set up that bookmark and check back often. Now on to the calendar and highlighting three companies to watch closely this season.

Working Casual Earnings Calendar Oct & Nov 2020: Gaming, Media & Tech Companies

Activision Blizzard, Inc (ATVI): Thursday, October 29

On one of the busiest days this quarter, domestic gaming juggernaut Activision Blizzard reports its third quarter results. I expect the ongoing momentum of Call of Duty: Modern Warfare, mostly attributed to its Warzone battle royale mode and constant stream of seasonal updates, to drive an impressive suite of figures. We’ll also hear about attribution from mid-September’s Tony Hawk’s Pro Skater 1+2, a critical darling, plus perhaps an indication of early sales for Crash Bandicoot 4: It’s About Time after its launch in early October. As for forecasting, I expect Activision Blizzard to maintain or even raise guidance with Call of Duty: Black Ops Cold War debuting in November, which I fully expect to be the best-selling console game of 2020.

Square Enix (9684): Early November

Square Enix will publish its second quarter report in early November, and it’s the most important in a long while. Mainly because this is the first period after the Japanese publisher’s flagship Marvel’s Avengers released in September, to both mixed reviews and an uncertain market reaction. As I wrote recently, it was the best-selling title in the U.S. during September according to The NPD Group. Industry tracking firm SuperData recently estimated it was the third best-seller of the month globally measured by digital sales on consoles, moving an approximate 2.2 million copies. This would be the company’s second best digital start ever behind April’s Final Fantasy 7 Remake. Square Enix has consistently reiterated very positive guidance leading into this fiscal, yet hasn’t shared global unit sales statistics for its second major title of 2020. Makes it tricky to know which way it will go.

Corsair Gaming Inc (CRSR), Unity Software (U): TBD

The games industry saw some notable initial public offerings during September in Corsair Gaming and Unity Software, the former a headset and accessory designer while the latter is a software provider boasting one of the world’s most popular gaming engines. Corsair shares declined right after listing, though have since rose over 70% to give the company a valuation over $2.2 billion. Unity Software has been hot from the start, its stock gaining 46% since first trading. This makes its market valuation a staggering $26 billion, at or ahead of the most established of publishers and software providers. This will be the first time these companies report publicly outside of their respective prospectuses, so we’ll see how underlying financials align with market sentiment once we know the exact dates.

Thanks for stopping by and hope to see you again soon!

Sources: Company Investor Relations Websites, NPD Group, SuperData.

-Dom

Forget Console Wars: Sony & Microsoft Can Both Win Next Generation

Congratulations, gaming fans. You can do it!

All of you.

After Sony’s somewhat messy reveal yesterday of many things PlayStation 5 plus Microsoft’s announcements last week regarding the Xbox Series X|S platforms, the foundation of gaming’s next console generation are starting to fall into place.

With these announcements and a subsequent trickle of details, both manufacturers are solidifying their individual strategies. Sony with its more direct platform marketing and big-budget exclusive software compared to Microsoft’s two-tiered hardware plan plus service as an ecosystem play.

And I believe that both of these can, and will, work out for them.

Starting with Sony, the Japanese tech giant shared that the PlayStation 5 base version starts at $499 with a Digital Edition set for a quite competitive $399. The only difference being the latter doesn’t have a physical disc drive. Both release on Thursday, November 12th in seven markets, then November 19th in the remainder. Launch lineup includes games like Demon’s Souls and Marvel’s Spider-Man Miles Morales (which now has an Ultimate Edition with a remastered version of 2018’s Marvel’s Spider-Man), with the most notable point being increased prices compared to last generation. The broad video game price increase is officially underway.

Sony’s showcase also had brand new announcements like Final Fantasy XVI from Square Enix and Warner Bros’ Hogwarts Legacy then capped off teasing a new God of War title in development from its Santa Monica Studio. Overall, it was a tight, informative presentation albeit missing a number of key details for things like software release windows and pre-order timing.

Messaging from Sony has been all over the place in the time since this reveal. First off, Sony allowed retailers to dictate when pre-orders went live despite saying that they would provide “plenty of notice” previously. Also in the past, executives like Sony Interactive Entertainment’s President & CEO Jim Ryan have stressed how the company believes in generations. That is, targeting games for strictly the new console as opposed to cross-generational type releases.

Then yesterday, the garbled communication accelerated. The team said PlayStation 5 games including Marvel’s Spider-Man: Miles Morales, Sackboy A Big Adventure and even next year’s flagship graphical powerhouse Horizon Forbidden West will also have PlayStation 4 releases. An inconsistency with seemingly its underlying strategy of established generations. Now, this makes all the sense in the world from a business standpoint. There are 112 million PlayStation 4 consoles in the wild, most owners of which won’t upgrade for a number of years. A clean-break generational move is antiquated in 2020, when backwards compatibility and maintaining a library is important.

Early adopters are going to buy the shiny new box regardless. It’s more about people six months or years from now that will determine the trajectory of sales. These companies have to consider those just as much as the enthusiasts.

In another twist, Ryan said in a couple interviews with media that the overall catalog of games is less significant than having “new, great” software offerings. Combine this with the massive $100 million or more budgets for its first party projects, Ryan doesn’t think that launching games into a subscription service is sustainable.

The irony is that I believe bridging the gap between PlayStation 4 and PlayStation 5 is one of the reasons why Sony can be successful in the upcoming cycle. Maintaining continuity with its legacy owners and their libraries will allow people to upgrade without fear of losing access to their favorite games, especially with many titles being live services now and not providing clear upgrade paths. Early adopters are going to buy the shiny new box regardless. It’s more about people six months or years from now that will determine the trajectory of sales. These companies have to consider those just as much as the enthusiasts.

Another reason I believe Sony can achieve is competitive pricing, especially the Digital Edition at $399. This model comes without sacrifice in the power department, it’s just that it only allows for digital downloads. Sony apparently had locked in the idea of getting at least a version to the same launch price of PlayStation 4, and they succeeded. The question comes down to availability, and anecdotal evidence says the digital version is much harder to find despite Sony saying that the PlayStation 5 will have more units overall at launch than its predecessor.

Finally, and it’s no secret, Sony’s software prowess is near unparalleled in modern game development. Its studios are among the most talented in the business. With projects like Horizon Forbidden West and God of War 2021 in the pipeline from internal teams, Sony seems to be leveraging a similar software strategy as last generation in quality, single-player experiences.

It’s also making key partnerships with external publishers, such as the aforementioned deal with Square Enix for Final Fantasy XVI console exclusivity plus its work with Bluepoint Games on major remakes, to round out the portfolio. There’s also a new service offering as part of its PlayStation Plus membership: PlayStation Plus Collection, where legacy titles will be available for PS5 owners.

That’s how Sony can win. Solid hardware pricing to sell volume of both editions, new foundational games on console then PlayStation Plus and even PC on the back end down the line. It just needs better and more honest messaging, clean up the pre-order process ahead of November and share information on upgrade paths like it has with Marvel’s Spider-Man: Miles Morales in that the game moves with players from PS4 to the upcoming generation.

Switching to its main competitor in Microsoft of course, its Xbox Series X and Xbox Series S consoles debut a bit earlier the same week on November 10th in a simultaneous global launch, for $499 and an utterly aggressive $299 respectively. Both are also available via what’s called the Xbox All Access financing program, for $34.99 and $24.99 per month each. This comes with a subscription to Xbox Game Pass Ultimate, an immediate library of software. Which is a key part of enticing especially new buyers, not having to drop so much money up front like generations of the past.

As I’ve stated before, the American software and cloud conglomerate’s modus operandi is ecosystem and services. Lowering the barrier to entry, offering games and subscriptions on a variety of devices beyond its consoles, embracing cloud as a complement to traditional gaming plus connecting everything in its Xbox brand. Its Xbox Game Pass catalog of games monthly subscription service is arguably the best value in the industry, considering that all new first party titles launch simultaneously into the service on their retail date.

Then there’s Project xCloud. Microsoft formally launched the cloud streaming offering just earlier this week for Xbox Game Pass Ultimate members in various countries for use on Android phones and tablets. It’s a play on the future direction of the industry. Despite some critics prognosticating otherwise, I don’t believe it’s a replacement for traditional games. It’s a complement that will offer yet another way to play console and PC quality software. Which means it won’t cannibalize sales, it will be accretive to the business line.

“We really built this strategy around that – play the games you want, with the people you want, on the devices you want or already have,” said Phil Spencer, Head of Xbox. “The high-level goal for us is can we build a platform where more people want to play more games more often?”

What this means is that Microsoft is foregoing one-time purchases up front to make it up in volume, monthly fees and player engagement. It hopes to monetize on an ongoing basis, and keep people in the ecosystem whether using hardware, PC or even mobile via cloud.

So, what does this have to do with winning? Everything.

A holistic approach makes Microsoft less dependent on core hardware sales and major, blockbuster exclusives than ever before. Its hyper-competitive pricing tier for Xbox Series S gives the most realistic entry point for various slices of the market: lapsed gamers, those on the fence about an upgrade and even PlayStation owners looking for a way to try games not available on that platform. Sure, the company is chalking up a loss on hardware and even generating less revenue up front with service discounts. It’s still built up a user base of 10 million strong for Xbox Game Pass as of last month, many of which have or will renew even when their discounts expire. And according to various accounts, this leads to people not just playing more games but also buying them, bumping up software sales alongside the subscription.

Xbox has also been much better about messaging and marketing, sending a clear signal with both its pricing and retail packaging. Its social media team is on fire, rolling with the punches during leaks and summarizing perfectly the contrast between its console models. While some argue that offering two models with similar names is confusing, I strongly disagree and think that tech consumers are more knowledgeable than that in the age of multiple iPhone models and countless TV iterations. The pricing alone tells the story: Xbox Series S is for those looking to enter next gen at an affordable price, Xbox Series X is for the enthusiasts that are much less sensitive to cost.

A holistic approach makes Microsoft less dependent on core hardware sales and major, blockbuster exclusives than ever before. Its hyper-competitive pricing tier for Xbox Series S gives the most realistic entry point for various slices of the market

The main question (and it’s a big one, no doubt) surrounding Xbox is its software lineup, at least early in the cycle. Without games like Halo Infinite, Forza Motorsport or Senua’s Saga: Hellblade 2 at launch, it will lean more on smaller titles like The Medium from Bloober Team and Ebb Software’s Scorn, older first party games like Gears 5 and Gears Tactics plus external, multi-platform releases such as Assassin’s Creed: Valhalla and Destiny 2: Beyond Light. With the amount of studio acquisitions and announced games like the aforementioned bunch plus Rare’s Fable and Everwild, I anticipate a more beefed up portfolio within two years of launch. Which is really the time that’s most make-or-break for sales.

Microsoft is one of the world’s largest companies, and while Xbox is a key brand segment, it’s a small portion of the overall business. We’re still talking about an $11.5 billion or more annual revenue generator here, one where Microsoft is clearly investing in parallel to its Cloud offerings. The firm can sustain a hit from discounted Xbox Game Pass and All Access programs, as long as the opportunity is there to keep players over time. These are meant to build up the audience base and benefit over the longer term, even if shorter term it appears to be slower than its competition.

As noted throughout, we now know how both Sony and Microsoft are throwing down aggressive pricing this holiday season for some powerful next generation boxes. Both are investing internally, mapping out marketing, purchasing studios and making partnerships in attempts to win mind-share and, most importantly, dollars.

Sony promises more PlayStation 5 consoles at launch than PlayStation 4, offers an enticing Digital Edition upgrade for PS4 owners while also solidifies a more impressive launch lineup of software even if its messaging has been jumbled. Microsoft’s message has been direct: Its Xbox Series S is the most affordable of the bunch and both consoles are available via a financing option for folks that might not want to pay up front or have been impacted financially by coronavirus.

It’s not quite time yet for my detailed forecasts, though this piece should give an early indication of where I’m at in that I expect both manufacturers to sell out of launch stock then move into the later years of this generation with unique offerings that absolutely will attract buyers. Even some that will overlap. If I had to pick, I’m slightly more bullish on Sony’s prospects especially if they can supply enough Digital Editions to the market at that extremely attractive $400 point.

That doesn’t mean its competition can’t also win. Each has something the other doesn’t, which means victory is attainable for all. Most of which, console gamers. Even if they’ll probably continue to fight among themselves for eternity.

Stay safe all. Thanks for reading!

All prices reference above in U.S. Dollars. Local pricing available at manufacturer websites.

Sources: Fast Company, GamesIndustry.Biz, Microsoft, Sony, TechRadar, Washington Post, Xbox Wire.

-Dom

Microsoft Reveals Xbox Series S, Leaks Hint to Series X Price & Release Date

Updated: September 9th.

It’s now around two months before next generation gaming consoles are set to release, and one of the manufacturers has finally moved publicly on price.

Well, sort of.

In the middle of the night here in the States, Microsoft formally unveiled its “smallest Xbox ever” in the Xbox Series S, the counterpart to its higher powered Xbox Series X platform. The leaner, more cost-friendly Series S will launch at $299 with a financing option at $25 per month via Xbox All Access.

Its existence has been the worst kept secret in the industry for a year or more, originating at the same time speculation began about Microsoft’s new generation approach featuring multiple, simultaneous console launches. Last night this intensified, mainly due to a post at Thurrott.com showing leaked promotional packaging for the Series S.

According to another leaked Series S promo posted by WalkingCat on Twitter, this time a full on video ad, Microsoft is certainly going for the segment of the audience that might want to upgrade or enter the Xbox ecosystem, doesn’t care about physical discs and refuses to break the bank in order to play the newest games.

Series S is an all-digital box, which means no disc drive, and it’s 60% smaller than the beefy Series X. While it has a quick-loading solid state hard drive (SSD), it’s only 512GB which is restrictive in terms of internal storage space. Especially for a console that only downloads or streams games. Its specs are of course reigned in compared to any next gen version so far, though targets comparable output in terms of performance. Supports high frame rates, 4K upscaling and more as you’ll see in the commercial.

Furthering the fervor, Windows Central dropped even more major news in that its sources say the powerful Xbox Series X will launch at $499 with a $35 per month financing option.

AND that both Xbox consoles will be out on Tuesday, November 10th.

(Edit: Microsoft has confirmed that at least Xbox Series S launches this day. I anticipate both will be at the same time.)

(Second Edit: Microsoft revealed that Xbox Series X will also release on this date, at $499.)

Whew. After months of snacking on crumbs, we now have a lot to digest. First, let’s talk timing.

This all sounds legitimate. Friend of the site Jez Corden and his team at Windows Central are reliable for most things Microsoft and this is consistent with the company’s own marketing of a November release. Plants it squarely before the holiday rush and right during the windows of big third party titles like Destiny 2: Beyond Light, Assassin’s Creed Valhalla and Cyberpunk 2077.

(The irony of a Bungie game that isn’t Halo being effectively a launch title for an Xbox console isn’t lost on me!)

And, this timing just might be before its rival Sony PlayStation 5 as well, which is rumored actually for later that week on Friday, November 13th.

If the simultaneous Xbox release happens to be November 10th, then it’s a few days after my prediction. I thought the console would hit on a Friday, though Microsoft is seemingly opting for a Tuesday strategy. Similar to its Xbox 360 debut in 2005. Really, the exact day of launch is less important in the grand scheme than is moving first and having it ready to go before Black Friday and holiday shopping begins in its major markets.

Still, what continues to stand out to me is a distinct lack of exclusive, first party launch games now that Halo: Infinite is delayed to next year. The timing tells me that Microsoft is leaning into those aforementioned third parties, updates from last generation software and its Xbox Game Pass service to entice people to upgrade. Perhaps when Microsoft officially reveals the date, it will also have a surprise announcement for a new launch game. (Not betting on it.)

There’s also the question of future-proofing, which is why this latest set of consoles try to target things like 8K resolution and 120 frames-per-second at the top end. These boxes need to be relevant years from now. Can the Series S accomplish this with its current specs? Probably not. Which is why we’ll likely see a mid-generational upgrade like we did last time around, so future-proofing isn’t as important as it once was.

Next up, that pricing!

The first word that came to mind when hearing these revelations is: Aggressive. Like, extremely so.

Earlier this year, I speculated that $499 would be the minimum price for Series X based on its specs and likely build cost. I’m on record saying I expected $349 for a cost-friendly Series S with the option to reduce based on its specs (which we never knew in advance, in my defense). Microsoft reaching or beating these, especially the $299 Series S point, clearly shows a strategy of making next gen affordable for as many people as possible even if the lower end specs aren’t dazzling.

These days for the $11.6 billion in annual revenue Xbox gaming division, it’s just as much about attracting buyers to Xbox Game Pass. The two-tiered console approach covers a significant part of the market now. Enthusiasts will always upgrade early, that’s the audience for Series X. It’s the more casual audience, those that are platform agnostic or even lapsed gamers that are most likely to bite on that juicy $299 price tag.

Another smart move from a marketing perspective is Microsoft starting with the price announcement of only its entry level version. Putting that in public mind-share on its own, rather than showing both at once. Taking this sort of staggered approach injects a sense of affordability in the market, saying to consumers that it really isn’t crazy expensive to move into the next generation of console gaming.

I fully expect to see at least a version of each console bundled with Xbox Live, Xbox Game Pass and even the streaming service Project xCloud, the last of which is an especially intriguing play for the all-digital Series S. An Xbox Series S bundled with an introductory subscription to Xbox Game Pass Ultimate could be the best bang for the buck early in the console cycle.

In terms of general sales predictions, I’m still cautiously upbeat on early prospects in November and all of the fourth quarter calendar year. For both console manufacturers, mind you. We still don’t know price or timing for Sony’s PlayStation 5, so I’m hesitant to go on record with figures or comparisons at this stage other than to say I’m expecting demand to be steady though unsure about production quantities.

Even so. With the confirmation of an all-digital version in the next gen Xbox family, Microsoft sales should shift towards that lower-margin model which means slightly lower overall revenue generation. I still fully expect early adopters to upgrade to the Series X. The question becomes how many of the people that might not have upgraded, or might have picked the PlayStation 5 Digital Edition, will now buy Series S? That will dictate sales even more than the hardcore players.

Of course it also comes down to production, which we know will be impacted by coronavirus and availability of parts. In 2013, Xbox One sold a million units in a day to be the biggest launch in Microsoft’s gaming history. And that was priced $100 more than its competitor. Between the two models this time, there’s potential for setting another record internally.

So, what now?

Microsoft ended its Twitter reveal saying that they will share more soon. Windows Central notes the likelihood of Xbox holding a press event in the near future, after which time I assume pre-orders will also go live for both versions. Expect this to be *very* soon, like within days now.

While overnight we saw our first glimpse of next generation pricing, plus received all-but-confirmed rumors of cost and timing for the Xbox suite of devices, we’re now waiting for that official confirmation.

Then, it’s Sony’s move. My “almost” final prediction for PlayStation 5 Standard Edition is $499 and Digital Edition is $399. Which would be great for that Series S entry point. When will we know? Well, right after Microsoft’s event seems like a sure thing.

I’d bet the house.

Stay tuned here or Twitter for more news, commentary and sales talk on next generation consoles plus everything in gaming. Thanks for reading!

All prices quoted in US Dollars. Sources: Microsoft, Thurott, WalkingCat on Twitter, Windows Central, Xbox Wire.

-Dom