It is gaming time folks! Microsoft Corp.'s (NASDAQ: MSFT) keenly-awaited Xbox One has gone on sale Friday in more than a dozen countries including Australia, France, Britain, Brazil and the United States.
The Xbox One, which is considered as a significant upgrade from Xbox 360 and goes beyond gaming, comes just days after rival Sony (NYSE: SNE) selling more than a million PlayStation 4s (PS4) in 24 hours following the console's launch in the US and Canada.
Specifically, video game makers such as Electronic Arts and Activision are putting the icing on the cake by releasing new games for the new consoles including Battlefield 4, NBA Live 14, Madden NFL 25, Call of Duty: Ghosts, and Skylanders Swap Force.
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The strong lineup of video game titles to support the launch of the new consoles should help uptake and boost the profitability of the basket of these sales.
Let's see how Amazon.com, Inc. (NASDAQ: AMZN) could benefit from launch of these consoles.
There could be upside to Amazon's fourth quarter media unit sales given the long anticipated arrival of new consoles (Nov. 15th for the PS4 and Nov. 22nd for the Xbox One) and associated new game titles.
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Amazon's media segment accounts for about 29 percent of its overall sales. For the third quarter, the segment generated revenue of $5.03 billion, an increase of 9 percent from last year. In North America, the media unit's sales rose 18 percent to $2.61 billion.
In fact, the strong demand for the consoles not only benefit the fourth quarter but also provides an easy comparison for the bulk of 2014.
UBS analyst Eric Sheridan assumes that video game and console sales make up roughly 10-15 percent of Amazon's North American Media segment sales.
Currently Amazon has a market share of 10 percent in North American video game sal! es. If Amazon is able to increase its share to 12 percent in 2014, then this yields a roughly 165bps, 136bps and 79 bps, respectively, to the online retailer's North American sales growth in the fourth quarter 2013 and fiscal 2014.
Moreover, the recent bullish commentaries from the executives of Sony and Microsoft suggest that they have huge expectations from the launches, and this bodes well for Amazon.
Sony is targeting to sell 5 million PS4 units between its November 15th U.S. launch date and the end of the company's fiscal year on March 31st. Given that the company does not plan on launching the PS4 in Japan until February, most of this unit growth is expected to come from the
U.S. This compares with 3.6 million PS3 units sold over a similar time frame.
On its Oct. 31st earnings conference call, Sony's Chief Financial Officer commented, "compared to past platforms, the pre-orders that we have received for this new platform is much much much higher."
Here are the words of Yusuf Mehdi, SVP of Interactive Entertainment, Microsoft, during a May 2013 interview with Official Xbox Magazine UK – "Every generation, as you've probably heard, has grown approximately 30%, so this generation is about 300 million units. Most industry experts think the next generation will get upwards of about 400 million units. We think you can go broader than a game console, that's our aim, and you can go from 400 million to potentially upwards of 1 billion units."
The more sales of consoles, the better for Amazon; thus, an uptick in video game-related sales should be a key driver for the stock. Though the video game sales represent only a small portion of sales for Amazon, they are nonetheless supportive of Amazon's potential to re-inflect both reported sales and unit growth.
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