Xbox Market Share Could Continue Growth Trend, But Limited Stock Upside for MSFT

January 19th, 2011 by Trefis Team
+3.64%
Upside
404
Market
419
Trefis
MSFT: Microsoft logo
MSFT
Microsoft

Microsoft’s (NASDAQ:MSFT) Xbox has been able to gain market share despite competition from Sony’s PS3 as well as Nintendo’s Wii and DS. We expect Microsoft will continue to gain share driven by competitive pricing of its console compared to PS3, and popularity of its Halo games. The growth will however be slower than observed in the recent past due to fierce competition among top video gaming industry players.

While we expect Xbox’s market share will touch 20% by the end of Trefis forecast period, Trefis members predict the share will be closer to 24%. Despite this divergence in estimates, we note that the actual impact on Microsoft’s stock value is limited, since Xbox & Zune (a portable media player) together account for only 2% of MSFT’s stock price.

We currently have a Trefis price estimate of $31.56 for Microsoft’s stock, about 10% above market price.

Relevant Articles
  1. Up Nearly 70% Since The Beginning Of 2023, Where Is Microsoft Stock Headed?
  2. Up 63% Since The Beginning Of 2023, How Will Microsoft Stock Trend After Q2 Earnings?
  3. Microsoft Stock Is Up 45% YTD And Outperformed The Consensus In Q1
  4. Microsoft Stock Outperformed The Expectations In Q4
  5. Microsoft Stock Is Fairly Priced At The Current Levels
  6. What To Expect From Microsoft Stock In Q3?

Xbox’s Competitive Console Pricing

While Sony’s PS3 is being sold at an average price of around $600, an average Xbox 360 costs closer to $300. Nintendo reduced the price of its Wii by $50 in 2009 to $200, and it remains the cheapest among the three console makers. Wii games are also cheaper than Xbox games. While an average Wii game might cost around $10-20, an average Xbox game is priced at $50-70. However, Microsoft offers a wider range of games than Nintendo. [1]

Popularity of Halo Game Series

Halo, a first person video shooter game developed by Bungie in 2001, was released as a launch title for Xbox. Halo quickly became a favorite with gamers and its sequels went on to break sales records. Halo 3 sold more than $170 million worth of copies in the first 24 hours of release, breaking the previous record set by Halo 2. [2]

Halo: Reach, in turn, broke the record set by Halo 3,  selling $200 million worth of copies on its first day. [3] The games have sold over 34 million copies worldwide, and Halo merchandise has cumulatively grossed more than $1.7 billion.

Trefis Community Forecast

Trefis members expect Xbox’s share in the gaming console market to increase from under 17% in 2010 to nearly 24% by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase towards 20% during the same period. Despite members’ more optimistic outlook, actual stock upside is limited as Xbox and Zune only contribute 2% to MSFT’s value, by our estimates.

Drag the trend line in the modifiable chart above to see how various Xbox market share scenarios could affect Microsoft’s stock value.

Register to win a free iPad. Visit our home page at trefis.com for details.

Our complete analysis for Microsoft’s stock is here.

Notes:
  1. Wii Vs Xbox 360, Buzzle.com, Sept. 28, 2010 [↩]
  2. Xbox 360 Exclusive Halo 3 Registers Biggest Day in Us Entertainment History with $170 Million in Sales, Gamespot.com, Sept 27, 2007 [↩]
  3. Microsoft “Halo: Reach” sales hit $200 million on 1st day, Reuters.com, Sept 16, 2010 [↩]