Video game companies underperform in quarterly earnings

Comment

The U.S. economy faces many setbacks, with inflation hitting its highest level in 40 years, falling consumer spending and a slowing job market. Even the video game industry – often referred to as “recession-resistant” due to consumers’ tendency to turn to games during downturns – hasn’t been immune to the overall trend. on the decline.

Gaming titans Nintendo, Microsoft and Sony have all reported declining revenue and missed profit expectations over the past two weeks. According to game companies, part of the reason is a weakened supply chain, still affected by pandemic-related lockdowns and challenges in delivering consoles to stores. Another aspect is that much of the world has now reopened and is not search online to falsify Connections.

“The world is on vacation,” Electronic Arts CEO Andrew Wilson said in an earnings call Tuesday.

On Monday, video game conglomerate Activision Blizzard reported net revenue of $1.64 billion, down $700 million from the same period last year. CEO Bobby Kotick described a “difficult economic environment,” with many companies announcing hiring freezes and layoffs; Still, he said, Activision saw its workforce increase by 25% over the previous year.

The company jumped on an earnings call, citing its nearly $69 billion pending acquisition by Microsoft. He confirmed in a press release that the deal is still expected to close on June 30 next year, if regulators approve it.

‘Scorched Earth’ and Big Profits: How Gaming Titan Bobby Kotick Outlasts His Opponents

While the Call of Duty franchise suffered setbacks, elsewhere in the company King, Activision’s mobile games unit, was thriving. Speaking to The Washington Post, Wedbush analyst Michael Pachter called it a “good quarter”, noting that the company saw mobile growth, particularly in King’s in-app purchases. King’s player count has stagnated, falling to 240 million from 255 million for the same period last year.

Other titles with planned updates are on the way, the company said, including “Call of Duty: Modern Warfare II,” “World of Warcraft: Wrath of the Lich King,” and “Overwatch 2.” The company has confirmed that ‘Diablo IV’ is still slated for release in 2023. Yet days later it was revealed that a World of Warcraft mobile game being developed in partnership with Chinese studio NetEase has been canceled by Blizzard. .

“Much of the world is no longer confined,” said Laine Nooney, assistant professor and video game historian at New York University. “There is definitely a sense of global constriction happening right now. It’s pretty obvious that the US – which still accounts for nearly half of all global gaming revenue – is already in a recession. Video games have always been discretionary entertainment. With the rising prices of basics like gas and food, there is less room in the budget for entertainment.

There was a bright spot. Electronic Arts announced its earnings on Tuesday, sharing that sales rose 22% this year, compared to the same period last year. A big part of that growth was EA’s slate of live service titles like “Apex Legends.”

“Electronic Arts has been wise to stick to its proven formula of monetizing popular franchises. EA has managed to corner the sports video game market with FIFA, NFL Madden and its recent addition F1,” said Joost van Dreunen, lecturer in games commerce at NYU Stern School of Business.”EA proves its mastery of monetization with record sales for FIFA Mobile for the quarter, the highest sales for the FIFA franchise and an increase 40% of the daily player average.”

You probably know someone who just got into Formula 1. That’s a good problem for F1 video games.

Supply chain issues with consoles may have impacted how many consumers have the newest Xbox and PlayStation products, and therefore how many new titles they buy. Across all game companies, those that offer live service games (like “Apex Legends” or the constantly updated “Candy Crush Saga”) have seen microtransactions bolster their results.

Electronic Arts CEO Andrew Wilson admitted supply chain constraints were affecting the company, but expressed optimism that consoles will be back in stock by next year.

“As the supply chain begins to relax, we expect more and more people to buy this next console,” Wilson said, adding that EA would invest in its sports titles to ensure that it would have enough content to keep players entertained for the next eight years. years of current-gen consoles.

Nintendo reported operating profit of 101.7 billion yen ($764 million), below analysts’ expectations of about 13.5 billion yen ($101.4 million). software sales also fell to 41.4 million units from 45.3 million last year. The company attributed its problems with console sales to supply chain issues and predicted it would catch up with production over the summer. Nintendo still expected it to sell a total of 21 million console units in the fiscal year ending next April.

From 2020: As the world weathers a pandemic, Nintendo may well be recession-proof

Similar to its Japanese competitor, Sony’s game software sales fell around 25%, selling 47.1 million PlayStation 4 and 5 titles between April and June, compared to 63.6 million the previous year. Asked about inflation and recession in the Western market during an earnings call translated from Japanese, CFO Hiroki Totoki replied that the main problem was meeting demand for consoles amid chain problems. supply. He also pointed out that Sony released fewer big games this fiscal year compared to the same period last year.

“There are two major constraints imposed on us. One is the availability of parts and components. The other is the supply chain,” Totoki said after being repeatedly asked about PS5 supply issues. “We want to produce as many units as possible.”

Totoki declined to say whether Sony would raise the price of the PlayStation 5. He attributed the drop in games software sales to people being more likely to leave their homes as the rate of covid-19 infections falls on some key markets. He said the company was still on track to sell a total of 18 million PS5 units in the fiscal year ending May 2023. He said the supply was recovering from a lockdown in Shanghai and rare semiconductor parts.

Sony completed the acquisition of Bungie and Haven Studios earlier this summer. Totoki cited the earlier-than-expected closing of the Bungie deal, plus a weaker yen, as reasons to cut its projected operating profit from 305 billion yen (about $2.3 million) to 255 billion yen. (about $1.9 million).

Microsoft also reported a $259 million drop in gaming revenue, citing lower demand for Xbox content and hardware, partially offset by growth in Xbox Game Pass subscriptions.

“Microsoft’s decision to push subscriptions is proving timely as its new revenue stream offsets its broader declines in software and hardware sales,” said Van Dreunen, a gaming business speaker. “Subscriptions tend to offer more value to consumers during times when the economy is proving weaker and inflation is high. It remains to be seen, however, how Game Pass will stack up as rival Sony steps up its offering, and a wider range of entertainment services in adjacent categories like video and music are vying for wallet share.