Xbox’s Average Selling Price Tied to its Market Share
The average selling price of Microsoft’s (NASDAQ:MSFT) Xbox gaming console declined from an estimated $300 in 2007 to about $235 in 2010, led by greater sales of low-end Xbox consoles in an overall weak consumer spending environment. However, sales of Xbox are growing faster than those of competitor products like Sony’s (NYSE:SNE) Playstation and Nintendo’s Wii. Microsoft claims, citing data by NPD Research, that Xbox 360 was the highest selling video-game console in the U.S. in April 2011 with retail sales of 297,000 units. [1]
However, the competition in the gaming market is still intense, and we expect a further drop in average Xbox prices. While we estimate Xbox’s average price will decline from $223 currently to $164 by the end of our forecast period, Trefis members predict a more moderate decline towards $220. While the difference here is notable, the actual impact to Microsoft’s stock value is minimal, as Xbox (together with Zune) contributes only 6% of our $27.77 price estimate for Microsoft’s stock.
Intense Competition Driving Down Xbox Price
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The gaming console market remains a highly competitive market where no player has a market share of more than 30%. We expect the competition to remain intense, which should sustain pressure on pricing. Microsoft has trimmed costs of its best selling Xbox 360 console in the past. In August 2009, it reduced Xbox 360 Elite console price from $399 to $299. [2] To attract more customers, in July 2010, Microsoft launched a cheaper version of Xbox 360 called Xbox 360 Slim priced at $200 with a memory of 4 GB. [3]. We expect the declining trend in Xbox pricing to continue over the next few years.
Xbox Sales Impressive
Microsoft’s Xobox continued with its strong performance in Q3 FY 2011. The company’s entertainment & devices division, which includes the Xbox, registered $225 million profit, which is 50% more than the same period last fiscal year. The quarter saw Xbox 360 sales of 2.7 million, amounting to total sales of near 53 million units worldwide to date, and Kinect sales of 2.4 million units. [4]
Xbox’s share in the gaming console market is currently at 17% by our estimates, and we expect this to rise to 20% by the end of our forecast period. If Microsoft maintains its sales momentum in the coming years, we could see a greater boost to Xbox’s market share, which in turn could stem its pricing decline, as predicted by the Trefis community in the chart above.
See our complete analysis for Microsoft’s stock here
Notes:- Microsoft Says Xbox Was Top-Selling Console in U.S. in April, Bloomberg, May 12, 2011 [↩]
- Microsoft Cuts Price of Xbox 360, WSJ, August 28, 2009 [↩]
- Analysis: Xbox 360 Blazes Ahead In 2010, October 18, 2010 [↩]
- Xbox 360 and Kinect boost Microsoft profits, GadTechNews, April 29, 2011 [↩]