The big story out of Microsoft (MSFT) last week was its acquisition of the phone hardware business from Nokia. Microsoft had another opportunity to make a big splash for investors, but I believe they missed it. The company announced it will be releasing the highly anticipated Xbox One console on November 22nd in the United States, a full week after the arrival of the Playstation 4 from Sony (SNE). This release date is among the many reasons I believe Playstation 4 will outsell the Xbox One and Sony shareholders should be in for a better return in the short term.
The Playstation 4 will release on November 15th in the United States and November 29th in Europe. Xbox One has a release of November 22nd. The console from Microsoft will have a slight advantage in Europe as it will beat the Playstation 4 to shelves by one week. The Playstation 4 will retail for $399, while Xbox One has a retail price of $499.
It was surprising to me that after Playstation went first in picking price and a release date, that Microsoft didn't try to beat Sony on one of these key aspects. Instead as we head into the important holiday shopping season, the Playstation 4 will be released first and for a lower price than the Xbox One.
From VGChartz, here is a look at console sales over the last four years:
In 2012, Playstation 3 had a 45.9% share of new sales of gaming consoles in North America. In 2013, that percentage has jumped to 51.7% of new console sales, vs. 35.7% for Xbox consoles. Over the lifetime of the newest consoles, Playstation has sold 78.9 million Playstation 3 consoles, representing 30.7% of all new consoles. The Xbox 360 has lifetime sales of 78.3 million consoles, for a 30.5% market share of new consoles sales. Nintendo's Wii console sold 99.9 million consoles over its history, but the newest WiiU console has struggled and shouldn't have big impact against the Playstation 4 or Xbox One consoles this holiday season.
Sony's Playstation 4 has seen strong pre-order numbers. The newest console is ahead of where the Playstation 3 was at the same respective period. Bundle packages that include the Playstation 4 console, a camera, an extra controller, and a game, have been selling out at retailers for weeks. The reason for the strong demand is quite simple. A gamer can purchase a bundle from a retailer for the Playstation 4 console and accessories for around the same price of just the Xbox One console. Sony has hit the head of the hammer with true value and one-upping the competition. Retailers like Best Buy, Amazon, and Game Stop are sold out of Playstation 4 opening day bundles.
Pre-orders of games for the Playstation 4 have also been stronger than the Xbox One. From VGChartz (08/31), here is a look at new console games in the top 20:
· #5: "Battlefield 4" Playstation 4, 249,293 copies
· #6: "Call of Duty: Ghosts" Playstation 4, 244,795 copies
· #8: "Call of Duty Ghosts" Xbox One, 235,781 copies
· #10: "Killzone: Shadow Fall" Playstation 4, 223, 954 copies
· #11: "Assassin's Creed IV: Black Flag" Playstation 4, 163,317 copies
· #15: "Battlefield 4" Xbox One, 127,719 copies
· #16: "Watch Dogs" Playstation 4, 120,968 copies
· #18: "Assassin's Creed IV: Black Flag" Xbox One, 106,879 copies
While not necessarily viewed as an accessory, it is worth noting the compatibility between the Playstation 4 and PS Vita. Games that are available for both consoles will be compatible between both devices. For example, start your game on the Playstation 4, pause it and then hop in the car and play the same game on your PS Vita. While this won't be a huge sales driver, my guess is anyone who owns a PS Vita will likely consider buying the Playstation 4 over the Xbox One.
Playstation 4 will also include the Twitch application built in. Twitch is a game recording and video streaming service. Playstation also has a partnership with Ustream, allowing gamers to record their highlights and share them online.
After a successful Kickstarter campaign, privately held Oculus has released its Oculus Rift virtual reality glasses for video games. After reports that Sony or Microsoft wanted to buy the company, it appears Sony is out. In fact, Sony has quietly been developing their own VR goggles. Sony recently showed off its VR headset with racing game "Drive Club".
So while the Xbox One comes with its motion sensor Kinect technology, Playstation may be offering fans the better accessory when its VR technology is released next year.
In fiscal 2013, Microsoft reported revenue of $77.3 billion. Of that total, the entertainment and devices segment was the fourth largest with $102 billion in revenue. The entertainment segment, which includes the Xbox division, posted operating income of $848 million, which was also fourth best for the company. In total, the entertainment and devices segment made up 13% and 3% of revenue and operating income.
Sony posted fiscal 2013 revenue of $72.3 billion. The company's gaming division posted revenue of $7.5 billion, representing 10% of the company's total. Of the company's eight business segments, gaming was the second worst segment. Operating income for the gaming division was $18 million, which was less than 1% of Sony's total.
The lower representation of revenue and operating income is where I see the opportunity for Sony shares to have the bigger run. In fiscal 2013, Microsoft's entertainment segment grew 6%, while Sony's gaming segment posted a double digit decline. The Playstation 3 was originally sold at a loss and Sony has promised that the Playstation 4 will have better profit margins. If Sony's other business segments can hold steady or post marginal increases, gaming sales could be one of the better performers and send shares higher.
In 2013, shares of Microsoft are up 13%. Since the May 21st announcement of the Xbox One, shares have dropped 10.6%. Sony on the other hand has seen shares rise 83% in 2013. Since the February 20th Playstation 4 presentation, shares are up over 45%. Clearly, Wall Street is giving the edge to Sony when it comes to the new consoles. Despite the heavy run-up, I believe Sony has the better growth ahead and should be able to get closer to $25 a share in the short term.
Sony has scored big with a cheaper price and better release date than Microsoft. Despite the cheaper price, the Playstation 4 will be more profitable than the company's previous console. Strong pre-orders of Playstation 4 bundles and games show the likely story of the console having the better holiday season.
To go along with an impressive gaming lineup, Sony also has new developments in its smart phone and entertainment categories. I wrote recently about the potential for a spin-off of the entertainment division. While Sony has voted against that, it could be re-visited in the near term, or if nothing more should show the value of Sony's business undervalued business units.
Since the release of the Playstation 3 (11/11/06) in Japan, shares of Sony are down over 45%. Since the Playstation 2 came out, shares are down over 80%. Don't be left behind when shares of Sony continue to rise on the success of the newest gaming console. Shares should go higher than $25 and could hit $30 on a strong couple of years of Playstation 4 sales, along with other improving business segments.