Video game sales slipped severely in April, falling 26% over last year’s numbers. But before you read too much into the number, it’s worth noting that one of the biggest drivers for this poor sales performance was a lack of compelling new titles from big game studios Activision Blizzard (ATVI), Take Two Interactive (TTWO) and Electronic Arts (ERTS). And while sales of Nintendo (NTDOY) consoles including the Wii and the DS fell, Sony (SNE) actually saw a jump in PlayStation 3 sales as did Microsoft (MSFT) with its Xbox 360.
Also it’s reasonable to expect that a big reason Nintendo saw a dramatic rollback in its DS video game console – a decline of more than half to 441,000 from over 1 million last year – is because it is launching an improved DS version with a larger screen. The DSi XL was made available late this month and sales of this video game console won’t show up until the May numbers are released.
And on the positive side, video game retail stock GameStop Corp. (GME) just reported impressive earnings this week. Specifically, GameStop earnings topped EPS estimates as first-quarter sales rose 5.1% over last year’s numbers to total $2.08 billion.
On the heels of March video game sales this year, these muddled trends make it admittedly difficult to predict how video game sales will play out going forward, but it’s not as simple as looking at a decline in numbers for heavyweights like Activision, Nintendo or other stocks. There are a few reasons to expect video game sales to explode later in the year. Here’s why:
- The summer months are always slow for video game sales, with big releases planned around the holidays and cold weather months.
- There is pent up demand for new titles not just sequels, but studios only recently have ramped up development costs and have few video games in the pipeline
- Video game sales are closely linked to hardware developments, as Activision proved with its innovative Guitar Hero controller. Microsoft “Project Natal” and Sony “PlayStation Move” motion controllers have been pushed back to the fall or even winter months, thus also delaying video game sales for these devices.
- Consumer spending across the market is improving. U.S. retail sales rose a seasonally adjusted 0.4% in April, the seventh straight month of increases. That strength is surely going to translate to bigger video game sales.
True, the industry may move sideways for a few months. Aside from Take Two Interactive Studio’s release of Red Dead Redemption in May, there haven’t been any new games that have been highly anticipated by gamers that haven’t been predictable sequels with a built in audience. Even Red Dead itself is a sequel, albeit a complete reinvention of the last game that was released in 2004. Gamers are hungry for something new beyond the latest incarnations of Sony title God of War, TTWO series Grand Theft Auto and a host of other hit series that are now staples of the video game industry, and they haven’t gotten anything substantive in a while.
But for investors, this may present a huge buying opportunity before the video game sales surge. Video game retail stock GME is down about 15% from its peak several weeks ago despite blowout GameStop earnings recently. ATVI stock is off 20% in about six weeks, and SNE stock is down about 10% in the last month. If you’re looking to buy in on a dip in anticipation of future strength, now may be the investment opportunity you’re looking for.
Disclosure: As of this writing, Jeff Reeves owned shares of GME in his personal portfolio.
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