Chin Up in the Downswing

positive economic news during recession

The Videogame Sector Has Plenty of Lives Left, Say Analysts

June 01, 2009 08:00 PM
by Anne Szustek
Although sales of videogames were sluggish during March and April, investors are voicing their confidence in the industry.

Slow Videogame Sales Figures Not Indicative of Overall Health

Sales across the video game industry were sluggish in March and April. According to market research firm NPD Group, U.S. sales of software for videogames were down 23 percent in April from the previous year, reported The Wall Street Journal. And this was on top of an already slow March, which saw a 23 percent decline in U.S. video game sales.

But don’t fret, say analysts. Much of the slowdown is due to demand for consoles being fulfilled. For example, the Nintendo Wii, which for most of its roughly two-and-a-half years in existence has been a fast seller, saw a 43 percent drop in U.S. sales in April from the previous month. “We believe the relative weakness in the Wii highlights that the console is in stock and that pent-up demand has been satisfied,” BMO Capital Markets’ Edward Williams wrote in a report cited by The Wall Street Journal. Plus, in terms of the games themselves, y-o-y comparisons between April 2008 and April 2009 may be skewed, given that last year marked the release of the hugely popular “Grand Theft Auto IV” and “Mario Kart,” both of which saw sales figures in excess of 1 million units during the month.

Investors apparently also have confidence in the overall health of the video game sector, as evidenced by recent bumps in share prices for companies in the industry.

Investors Confident Video Games Will Reach the Next Level

On May 15, shares of top video game producer Electronic Arts were up 4.1 percent to $20.91. Take-Two Interactive’s stock was up 8.1 percent to $8.85 the same day, while video game store’s GameStop’s price-per-share was up 3.8 percent to $26.96, reported The Wall Street Journal.

The medium-to-long term outlook for video games is robust as well. Total global sales, including game hardware, are poised to eclipse the $98 billion mark this year and $110 billion the next, according to Reuters. “I do see that, in the fourth quarter, there will be a return to form,” Billy Pidgeon, an independent analyst for Game Changer Research, told Reuters.

In the meantime, video game stocks are outpacing the Standard & Poor’s 500 as a whole, writes investment site The Motley Fool. “The average video game company is growing faster, is more profitable, has a cleaner balance sheet … and actually trades at a lower forward earnings multiple than the S&P 500,” writes the site. Plus, according to a PricewaterhouseCoopers report, sales of video games are set to outperform those of most other forms of entertainment. Videogame sales are already surpassing those of the movie sector: for the fiscal year ending in March 2009, they topped out at $28.7 billion, compared to cinema’s $28 billion, according to statistics from Hudson Square Research analyst Daniel Ernst and cited by Reuters.

Most Recent Beyond The Headlines