Gaming Console Market Expected to Rebound
Sales of gaming consoles have declined from around 98 million globally in 2008 to about 89 million in 2009 [1], driven significantly by the weakness in the global economy. Despite the slowdown we believe that sales will increase moving forward which would benefit console makers like Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE) and Nintendo (TYO:7974) alike.
However, even if sales do increase drastically, we believe that this will have a very negligible impact on Microsoft’s stock price, as the Xbox division accounts for only 1% of Microsoft’s stock. We currently have a Trefis price estimate of $28 for Microsoft’s stock, about 8% above the current market price of $26.
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Sales of consoles to grow
Gaming console sales have historically done well except for the decline witnessed in 2009, led by the global gaming downturn as a result of the weak economic environment.
Video games as a form of entertainment is increasing becoming popular to a wider audience with more casual gamers joining in. The development and innovation in hardware and the advent of high definition TV have facilitated graphically rich games. These tend to offer a much better visual experience than what was available a few years ago.
Microsoft recently announced that it will start selling its Xbox 360 gaming console equipment with the new Kinect motion sensor. Similarly, Sony plans to add a rival motion sensing technology called “Move” to its Play Station 3 gaming console. Nintendo has also developed a new version of its DS handheld device that allows users to play 3-D games without special glasses. New technologies and the growth in the gaming audience would likely boost the number of consoles sold.
However, a long-term consumer shift towards playing games on smartphones offering free or lower priced downloadable games may dampen the rebound of gaming console sales.
The average of Trefis member forecasts of the Global Gaming Console Market for the number of consoles sold indicates an increase from 91 million in 2010 to 129 million by 2016, compared to the baseline Trefis estimate of an increase from around 85 million in 2010 to 114 million by the end of the Trefis forecast period. These member estimates imply a small upside to the Trefis price estimate for Microsoft’s stock.
You can drag the forecast trend-line above to express your own view, and see the sensitivity of Microsoft’s stock to Global Gaming Console Market.
Our complete analysis for Microsoft’s stock is here.
Notes:
1. Trefis estimates for global gaming market are based on data from vgchartz.com.
2. 2009 U.S. Video game industry and PC game software retail sales reach $20.2 billion