Microsoft Is Getting an Unexpected Boost From Halo 5

The latest installment of Microsoft's blockbuster video game franchise Halo is shaping up to be the most successful of the series so far.
By Tobias Burns ,

The latest installment of Microsoft's (MSFT) - Get Report blockbuster video game franchise Halo is shaping up to be the most successful of the series so far - and Wall Street is taking notice.

Halo 5: Guardians took in $400 million in its first week of sales. That's a 33% jump from the 2012 debut of Halo 4, which generated $300 million in the first week. On its first day alone, Halo 4 sold $220 million worldwide. The impressive numbers are causing analysts to increase their estimates for Microsoft. Piper Jaffray analyst Katherine R. Egbert raised her price target to $64 from $53, while keeping their overweight rating on shares.

"With resurgence in growth coming from Halo, Windows10 and other products, Microsoft appears to on its way towards a more growth-oriented phase of life, which is reflected more properly by the higher multiple," Egbert wrote in a Nov. 10 note to investors. "Our revised EPS estimates reflect a lower gross margin structure and a lower tax rate in the forward quarters."

Microsoft has been looking forward to the Halo 5 launch for a long time. "This new Halo includes an epic hunt for Master Chief along with ground-breaking multiplayer matches on Xbox Live," Microsoft CEO Satya Nadella said on the company's most recent conference call. "As a result, I confidently predict that time will become much more scarce for Xbox One owners starting on Tuesday."

Nadella's predictions proved correct. During week one of Halo 5, Xbox One users spent 21 million hours in front of the game, according to the company.

"We view the resurgence of Xbox and the Halo franchise as symptomatic of a wider resurgence within Microsoft towards a more consumer- and customer-centric growth strategy, led by a new generation of leaders not afraid to untie the company's past, often defensive principles," Egbert wrote in a note to clients.

While the Halo games historically result in revenue upside for the company, product launches are tied to downward movements in Microsoft's gross margins, Egbert penned in the note.

Despite the success of franchises like Halo, Gears of War and Tomb Raider, Xbox One still holds the no. 2 position behind rival console PlayStation 4, made by Sony (SNE) - Get Report .

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