Shares of the leading video game software publishers traded higher Friday despite mixed November sales.
U.S. sales of console games -- those made for
GameCube and Game Boy game machines -- rose 11% in November over the same month last year, according to NPD Funworld. But the $849 million in sales were below some analysts' forecasts and would have fallen below the previous November's level if not for two megahits:
Grand Theft Auto: San Andreas
"November overall retail sales were much lower than our expectations," commented Michael Pachter, who covers the video game sector for Wedbush Morgan Securities. "We are not confident that December sales will rebound dramatically, as we expect early sales of some of the blockbuster titles to cannibalize demand at Christmas." (Wedbush Morgan has not done investment banking for any of the leading video game publishers in the last year.)
Investors shrugged off such concerns, sending many of the company's stocks higher.
stock closed up $1.73, or 3.3%, to $54.19, Take-Two ended up $1.20, or 3.7%, to $33.71, and
finished up 82 cents, or 3.7%, to $22.73.
The big winner on the day was
, up $1.09, or 6.5%, to $17.75.
Analysts have been expecting the holiday season to be dominated by a select number of titles, led by
. That expectation was met in November, as those two titles alone, including a special edition of
, accounted for about 29% of total console game sales. All told, the top 10 titles accounted for about 40% of total sales in November.
Although it only had one title in the top 10, and just two in the top 20, THQ was one of the surprises for the month, as the company's sales increased 26% over last year and its market share increased to about 8%. Pachter had expected the company to post $65 million in retail sales; THQ exceeded that by about $6 million, driven by sales of
WWE Smackdown vs. Raw
THQ has some pretty aggressive targets for the holiday quarter, particularly given the weak October results, we believe the company is moving in the right direction and should be able to meet its targets," said Merill Lynch analyst Karen Russillo, in a note Friday. (In the last year, Merrill Lynch has not performed investment banking business for any of the four video game publishers companies that Russillo covers.)
But the month also had disappointments for individual publishers and the sector as a whole. Pachter, for instance, had forecast sales of $980 million in November. Similarly, Pacific Crest analyst Evan Wilson had predicted that sales of console games would reach $955 million last month.
"Lower-than-expected November sales growth has negative data implications for the health of the video game industry this holiday season," Wilson said in a note published on Friday. Pacific Crest has not done investment banking business in the last year with the four companies in the sector that Wilson covers: Activision, Take-Two, EA or THQ.
Without sales of
, November's sales would have been 21% lower than last year's total, Pachter noted. That indicates that those two titles are eating into sales of other games.
In terms of units sold, the number of titles sold for PlayStation 2 declined from 10.6 million to 10.5 million year over year in November, Pachter said. And excluding sales of
, which is currently available only for Sony's game machine, PlayStation 2 software sales would have fallen 15%.
Wilson, Pachter and other analyst attributed the overall shortfall in game sales relative to their expectations to weak sales of particular titles.
helped drive Take-Two sales up 127% over last November to about $100 million, sales of the game -- and the company's overall revenue -- fell short of analysts' forecasts. Wilson, for instance, had predicted that Take-Two would sell 2 million copies of
in November and rack up $121 million in total sales. Instead, the company sold 1.54 million units of its latest
Grand Theft Auto
title, according to NPD data.
"We expect negative investor reaction to the Take-Two sales numbers, and in particular believe that investors will be disappointed in sales of
," said Pachter, who had predicted that the company would sell 2.2 million copies of
. "We acknowledge our part in setting expectations too high, and note that many investors will likely question whether the drop off in sales from October is the beginning of a trend."
Similarly, market leader EA fell well short of expectations with a number of its titles. Only four of the company's titles were in the list of NPD's top 20 sellers, noted Russillo. Although EA's
Need for Speed Undergound 2
was the fourth-best-selling title in November, sales of other titles such as
GoldenEye: Rogue Agent
Lord of the Rings: The Third Age
Pachter, for instance, had predicted that GoldenEye would sell 300,000 copies in the month; instead, NPD recorded just 70,000 units sold.
"The fact that most of EA's November releases did not make the top-20 list, suggests there may be few catalysts to drive shares in the near term," said Russillo, who maintains a neutral rating on the stock.
Likewise, Pacther had predicted that
would post $30 million in console game sales in November, boosted by sales of 500,000 copies of
. Instead, just 115,000 copies of the title were sold, and the company had sales of just $10 million, albeit up 39% from a year ealier.
"We were extremely disappointed in Midway's sales for the month," Pachter said. "Although the company is substantially ahead of last year's sales pace in the U.S. and is likely to meet or exceed revenue guidance for the quarter, we believe that many investors expected upside, and we anticipate that this will no longer be the case."