Gaming Sector Updates: GameStop, EA Smacked by Lower Video Game Sales in January

Gaming stocks such as Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI) and GameStop (NYSE:GME) plunged after the disclosure by a NPD Group report that retail video gaming sales declined by 34% in December 2011 compared to that in December 2010. ^[1] While a decline in January sales was anticipated among some video game analysts, the 34% drop was far deeper than analysts expected. We believe lack of new releases in January, combined with changing landscape  of gaming industry from retail to digital and aging current generation consoles were the primary reason behind the steep decline.

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The sorry state of current retail video-gaming industry

Video game sales remained choppy throughout January, with both software and hardware sales plummeting by 38%. While a lack of new releases remained the primary contributor in the video game software sales, the hit game Call of Duty: Modern Warfare 3 also lost its steam in January, compared to a strong run in November and December. The situation is equally bad in hardware sales too. The massive decline in hardware sales primarily reflected a sharp decline in Nintendo’s Wii sales. Additionally, sales of current market leader XBox 360 were also down to 270,000 units from 381,000 a year ago.

The biggest losers due to a drop in hardware sales have been retailers such as GameStop. GameStop’s hardware sales were hit hard in December resulting in lackluster holiday sales, and we expect the trend to continue until a significant new launch in hardware consoles. Both retail video-gaming hardware and software contributes roughly 24% to GameStop’s Trefis price estimate.

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1. NPD Group disclose January video game sales data, Source: Market Watch [↩]