Can The Video Game Industry Rebound?

The video game industry’s boom has ended. After record sales in 2020 and 2021, videogame companies struggled in the second quarter and first half of this year.

Soaring commodity prices have caused individuals to cut back on discretionary spending, but the videogame sector is experiencing other issues. According to NPD, videogame sales plummeted in the first half and second quarter as gamers trimmed console and accessory purchases. Few big games have been released recently, reducing gamers’ interest.
Second-quarter videogame sales drop

NPD reports that videogame sales declined $1.78 billion in the second quarter of 2022, totaling $12.35 billion. It’s down 13% year-over-year.

Microsoft Corporation MSFT and Sony Corporation (SONY) recently revealed gaming revenue reductions. Almost all significant videogame manufacturers are hesitant to introduce new systems or games and reported a second-quarter sales dip.

SONY’s April-June gaming revenues fell 2% year-over-year. Sony’s operating profit fell 37%, and the corporation is pessimistic. Sony lowered its full-year profit prediction by 16%.

Microsoft’s situation is similar. MSFT’s gaming unit’s second-quarter revenues fell 7% year over year. Microsoft’s content and services revenues fell 6% year over year, and Xbox console revenues fell 11%. Zacks Rank #3 Microsoft (Hold). See today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft’s acquisition of Activision Blizzard had even lower numbers. ATVI’s net profit fell 70% and revenues fell 29%. Activision Blizzard blamed the large fall on low sales of its current Call of Duty games, but there are additional hurdles for all game creators.

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Nintendo NTDOY, a strong performer throughout the pandemic, had a 15% drop in second-quarter profit. NTDOY sold 3.43 million Switch consoles, a 23% year-over-year decline. Nintendo’s April-June software sales fell 8.6% year over year to 41.4 million.

EA EA reported profits alone. EA’s second-quarter profits and revenues rose 50% and 14%, respectively.
Numerous obstacles

Gaming faces many obstacles. Inflation has encouraged people to spend less on luxury since they’re more cautious. First-half video game sales plummeted after strong 2020 and 2021.

As COVID-19 forced people indoors, the gaming business grew. The video game industry expanded 26% from 2019 to 2021, reaching $191 billion in revenue. The pandemic helped boost 2015 sales.

Since January, things have altered. Once the economy reopened, experts thought video game sales would decline as consumers turned to outdoor activities. Popular games and systems boosted sales in 2021, but that has stopped.

Since there haven’t been any major launches, gamers’ enthusiasm is diminishing and the dry period will remain a while. In April, May, and June, classics were popular. This is why Nintendo, Microsoft, and Sony’s second-quarter revenues fell.

Competition for console hardware is hindering gaming industry performance.

Second-quarter Switch sales fell 23% year over year. Sony PlayStation 5 sales were 2.4 million in April-June, up from 2.3 million last year.

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Due to logistical challenges, a scarcity of gaming components, and a semiconductor shortage, players have had trouble finding new consoles in stores and online.

The Russia-Ukraine conflict affects the gaming business. Microsoft and Sony have discontinued operations in Russia after the invasion of Ukraine.

According to Ampere Analysis, Russia was once the world’s 10th largest gaming market. Sales have plummeted.

Ampere Analysis predicts the global gaming business would shrink 1.2% to $188 billion in 2022. The gaming business hasn’t seen an annual downturn in over a decade.

The industry has huge potential. Second-half titles and platforms will likely boost sales. Ampere Analysis reports that after two years of significant expansion, the gaming business is returning some profits this year. Although a drop is expected, 2023 should see considerable growth.