December 2007 Video Game Sales Preview: Expect +28% Sales Growth
• We expect December U.S. retail video game console software sales data to be released after market close on Thursday, January 17. We forecast sales of $2.222 billion, +28% compared to last year’s $1.740 billion. This was an exceedingly difficult month to forecast, given that November sales of $1.3 billion were so phenomenal. Historically,December has never yielded results lower than 2x the results in November (at least since 2000), and we are prepared to be spectacularly wrong with our forecast should the historical pattern hold this month.
• Our estimate reflects $1.837 billion in sales contribution from new platforms (PS3, Wii, 360, PSP and DS) and current generation software sales of $385 million. We believe that PS2 software sales declined 41% year-over-year, as contribution from next generation software has more than offset the decline in current generation software sales. We
estimate sell-through of 1,450,000 Wii, 1,250,000 Xbox 360 and 875,000 PS3 consoles. For purposes of comparison, The simExchange prediction market forecasts 1,730,000 Wii, 1,450,000 Xbox 360 and 854,000 PS3 consoles.
• Sales growth over the first 11 months of 2007 was a robust 33%, well ahead of our forecast of 19% growth for the year. Notwithstanding last month’s up 62% on broad strength in video game products and a beneficial calendar shift, we continue to expect robust sales in December, with the sector appearing recession-proof. It is important to note
that November included nine days of sales post-Thanksgiving, compared to only two days of sales last year, which likely accelerated some sales from December.
• Sony and Microsoft have already announced strong holiday sales of their consoles. Our console sell-through forecasts are consistent with these announcements. In addition, in December, Activision and Ubisoft significantly raised Q3 (Dec) quarter guidance.
• We think that solid software sales growth will continue into early 2008, as the holiday lineup includes high priced (and sold out) games like Guitar Hero III and Rock Band, and the post-holiday line-up is also quite strong. Werecommend that investors accumulate Activision, Electronic Arts, GameStop, Nintendo, THQ, and Ubisoft shares at current levels.
• For December, we expect the following revenue results:
o Activision -- $440 million, +74% y-o-y.
o Atari -- $14 million, -28% y-o-y.
o Electronic Arts -- $445 million, +45% y-o-y.
o Majesco -- $12 million, +11% y-o-y.
o Midway -- $18 million, -50% y-o-y.
o Nintendo -- $325 million, +37% y-o-y.
o Take-Two -- $72 million, +2% y-o-y.
o THQ -- $150 million, -5% y-o-y.
o Ubisoft -- $175 million, +91% y-o-y.
We expect December sales of $2.222 billion (up 28% compared to December 2006’s $1.740 billion). We expect next generation software sales of $1.837 billion and current-generation software sales of $385 million. We believe that PS2 software sales declined 41% year-over-year, as contribution from next generation software has more than offset the decline in current generation software sales. The rate of PS2 software sales decline decreased slightly last month (-23%) compared with -24% YTD through November. The degree of PS2 software sales decline over the next several months will likely be highly correlated to next generation console sales, with year-over-year increases in next generation consoles purchases likely to accelerate declining demand for current generation software.
We expect December sales to be driven by recent top selling releases Nintendo’s Super Mario Galaxy and Wii Play, Activision’s Call of Duty 4 and Guitar Hero III, Electronic Arts’ Rock Band, THQ’s WWE SmackDown vs. Raw 2008, and Ubisoft’s Assassin’s Creed. December is usually a light month for new releases as most publishers try to release their biggest games before the holiday selling season. The top December releases were Electronic Arts’ Rock Band (PS2), Midway’s Unreal Tournament III (PS3), and THQ’s MX vs ATV Untamed (PS3, PS2, PSP, 360, DS).
Our forecasts for console hardware sales are as follows (The simExchange prediction market forecasts are provided for
comparison):
WMS TSE*
Wii 1,450,000 1,730,000
PS3 875,000 854,000
Xbox 360 1,250,000 1,450,000
PS2 975,000 n/a
PSP 1,075,000 1,030,000
DS 2,450,000 2,900,000
GBA 85,000 n/a
