Wedbush Concerned Over NPD December Sales Data

Wedbush Morgan stock analyst Michael Pachter today expressed concern over the recently released NPD video game hardware and software U.S. sales data, which reflected results that were “much lower” than the firm's earlier expectations. With retail sales of $1.726 billion compared to Wedbush's estimate of $1.875 billion, the firm noted that the discrepancy was the result of software sales for the period that were overall weaker than expected. In particular, the NPD data found that Wii software sales for the month were $65 million below the analyst's previous estimate, while the console itself was found to have have sold through around 1.1 million units. "The Wii figure came as a surprise to us, given Nintendo’s claim that it has shipped the “majority” of its 4 million Wii units to North America," commented Pachter. "Our Wii forecast of 1.3 million units in December (cumulative sales of 1.8 million since launch) was based upon a combination of Nintendo’s statements and our own channel checks, as we were unable to locate surplus Wii units in the retail channel at any time through year-end." The analyst added: "The Wii sell-through figure is also surprising in light of anecdotal evidence that suggested that Wiis were obtainable, while PS3s were impossible to find. The NPD figure is difficult to reconcile in light of Nintendo’s comments and our own observations." Also somewhat distressing to the firm was the reported lower than anticipated sales of software for the PlayStation 2, despite the aging console's relative dominance of other platforms for the December period. While the PlayStation 2 hardware iteself continued to be a popular platform at retail, selling 1.4 million units for the month, Pachter relayed in a research note to investors that “the precipitous decline in PS2 software sales concerns us.” He added: “Now that PS3 and Wii hardware is beginning to show up at retail, we wonder whether the decline in PS2 software sales will continue. We expect publisher support for the PS2 to continue throughout 2007, and had not expect overall meaningful declines in PS2 software sales to begin until mid-2007, but the December figure may mark the beginning of such a decline. Although we expect a year-over-year decline of 20 – 35% for current generation software sales in 2007, we believe that next generation software sales growth will more than offset this decline.” In total, NPD's reported current generation software sales of $912 million missed Wedbush's earlier estimate of $948 million. Likewise, next generation software sales of $813 million fell below the analyst's $928 million forecast. “We had expected PS2 software sales to be flat (consistent with the pattern over the past eight months), and the December figure was down 19% year-over-year. While it is possible that the greater than expected decline of PS2 software sales was primarily due to greater excitement about next generation consoles, we are at a loss to fully explain the decline,” commented the analyst. These and other factors have resulted in Wedbush to be “somewhat skeptical” regarding NPD's latest December figures. In particular, the analyst suggested that NPD's figures may in fact not be indicative of December's sales results, highlighted by the fact that while NPD indicated that November and December software sales were up just 6 percent, major retailer GameStop last week noted that its software sales had jumped a much more considerable 18 percent for the period. “While it is possible that GameStop gained significant market share during the holidays, comments from competitors Best Buy and Circuit City suggest to us that GameStop gained only slight market share,” wrote Pachter. “If GameStop did not gain significant share, the NPD’s reported figures may be far below the actual sales generated in December.” Pachter added that this discrepancy between the NPD’s figures and those reported by GameStop are “difficult to reconcile,” and that an explanation may have to wait until game publishers themselves release their associated earnings reports in the near future.