As part of his latest research note to investors, Lazard Capital Markets' analyst Colin Sebastian has commented on the current state of the video games market in run up to the Thanksgiving Day U.S. holiday and its related “Black Friday” major shopping day, noting "strong demand" for both hardware and software.
In the wake of the recent PlayStation 3 and Wii console launches, the analyst notes that indications are that the consumer excitement surrounding the new hardware continues to thrive despite the lack of available supply. Says Sebastian, “Our retail checks and comments from specialty retailer GameStop indicate that there is strong demand for PS3 and Wii ahead of meaningful replenishments, while the Xbox 360 appears to be benefiting from new console shortages and the release of new title Gears of War
He adds that expectations are that Nintendo will manage to ship approximately 150,000-200,000 Wii units to North America each week throughout the remainder of 2006. In addition, the firm also believes that both the PlayStation 2 and Nintendo DS will also continue to sell well.
In addition, this week Sony iterated
that it has shipped a new batch of PlayStation 3 consoles to North American retailers in time for this Friday's major shopping day, as well as its established goal of shipping 1 million consoles in North America by the end of the year. However, Lazard seems skeptical of this figure, noting belief that Sony will sell just 750,000 units through December.
Looking to software, Sebastian adds that Lazard believes that game sales are also shaping up well in preparation for Black Friday and the Thanksgiving weekend, particularly due to the debut of high profile releases such as Gears of War
, The Legend of Zelda: Twilight Princess
, Resistance: Fall of Man
, Guitar Hero 2
, Call of Duty 3
, WWE Smackdown
, Need for Speed: Carbon
, and Final Fantasy XII
Looking at PlayStation 3 releases in particular, the analyst further adds, “We note that the initial PS3 TIE ratio is a little light of expectations (1.5x according to GameStop); however, we expect follow-up game sales and holiday gifts to provide a boost by the end of the year.”
Concerning the practice of PlayStation 3 early adopters reselling their newly purchased consoles online, Sebastian estimates that between 10-15 percent of all PlayStation 3 consoles sold were again resold through major online auction house eBay. “Based on our analysis of auction listings,” notes Sebastian, “we estimate that approximately 20,000 PS3s have sold on eBay since pre-orders for the console began last month, with an average auction price of approximately $1,500 (a 150% premium over the retail price).” The research note adds that as of its writing, there were approximately 9,000 consoles currently listed for sale on eBay.
Looking to the shares of those video game companies represented by the film, particularly Activision, Electronic Arts, THQ, and major retail chain GameStop, the analyst notes that is has maintained a Buy rating for each of the companies. However, Sebastian notes that apart from near-term issues related to the console transition period, the biggest risks facing each of the game developers and publishers is rising development costs, while both THQ and Activision also face the added risk associated with going SEC inquiries into stock option practices.
GameStop, on the other hand, faces the possible risk of slower than expected next-generation software sales, as well as increased competition from larger retailers and the possibility of increased adoption of digital download services.