Video Games: $100 Price Cut For PS3 Would Be Too Little, Too Late, Says B of A There is growing anticipation in the video games business that Sony (SNE) is planning a $100 price cut sometime soon on the Sony Playstation 3, which now sells for $599. The hope in the video game publishing business is that a price cut can stimulate demand for the PS3, which so far has been something [...]
There is growing anticipation in the video games business that Sony (SNE) is planning a $100 price cut sometime soon on the Sony Playstation 3, which now sells for $599. The hope in the video game publishing business is that a price cut can stimulate demand for the PS3, which so far has been something of a disappointment for both Sony and the game publishers.
Michael Savner, an analyst at Bank of America, thinks this is a false hope. “We do not believe such a move would meaningfully improve stagnant PS3 sales and we are growing more concerned that a share shift away from Sony and Microsoft (MSFT) to Nintendo’s Wii platform is incrementally negative for all third-party publishers,” he wrote in a research report on the games sector this morning.
Saver notes that even with a $100 price cut, the “all-in” cost of buying a PS3 is nearly $800 - including a second game controller, an HDMI cable and two games. That is 23% above the comparable cost for the Xbox 360, and 45% above what’s you pay for a similarly outfitted Wii. (Though the Wii and Xbox do not support HDMI; the estimate is based on the component video cables included with the boxes.)
A related issue, Saver notes, is that Sony has no edge in exclusive games. As I noted in a post earlier today, Microsoft is readying the release of the Xbox-only Halo 3; and Take Two (TTWO) will release Grand Theft Auto 4 for both the Xbox and the PS 3 later this year. “We don’t see any compelling PS3 exclusive games that could drive hardware in the near term,” he writes.
Savner notes that the Wii continues to take more share of the console market. Since its launch, he says, the Wii has sold 2.5 million units in the U.S., compared to 1.3 million for the PS3 - and 3.1 million for the PS2. “The implication,” he writes, “is that until the overall hardware market expands, publishers are trading from a higher ASP platform to a lower one.”
Savner today adjusted his forecast for 2007 console unit sales:
- Xbox 360 drops to 6,030,000 units from 6,211,000.
- PS3 drops to 4,290,000 units from 5,054,000.
- PS2 increases to 3,814,000 units from 3,122,000.
- Wii increases to 6,530,000 units from 5,139,000.
Savner says Sony could attempt to drive sales with an even bigger price cut, but likely will not choose to do so: he notes that even at $599, the company likely loses $200 per console.
One final point to keep in mind is that Nintendo gets to double dip with the Wii, since most of the best-selling titles (like the various Mario games) are published by Nintendo itself.
Savner’s conclusion: this is the wrong year to own video game stocks. In today’s trading:
- Electronic Arts (ERTS) is down $1.60 at $46.61.
- Activision (ATVI) is down 40 cents at $18.63.
- THQ (THQI) is down 97 cents at $32.29.
- Take Two (TTWO) is down 28 cents at $18.71.
Source: feeds.barrons.infoValueClick: Piper Downgrades; But Jefferies Sees Good Fit With Yahoo The debate over the future of ValueClick (VCLK) has taken a few more twists. The story so far: ValueClick shares have had a big run in recent weeks, as a variety of large companies - Google (GOOG), Microsoft (MSFT), Yahoo (YHOO), WPP Group (WPPGY) - snap up shares of smaller Internet marketing companies - Doubleclick, [...]
The debate over the future of ValueClick (VCLK) has taken a few more twists. The story so far: ValueClick shares have had a big run in recent weeks, as a variety of large companies - Google (GOOG), Microsoft (MSFT), Yahoo (YHOO), WPP Group (WPPGY) - snap up shares of smaller Internet marketing companies - Doubleclick, aQuantive (AQNT), Right Media and 24/7 (TFSM), respectively. Meanwhile, the Federal Trade Commission has launched an investigation into whether ValueClick’s lead generation business is violating various federal consumer protection laws. Speculators have bid up the shares on the theory that ValueClick is the last decent-sized online ad company left to buy; but an increasing number of analysts are backing away from the stock, asserting that the FTC probe may prevent any near-term takeover bids, and that without one the stock is too high.
In the last few days, the shares have been downgraded by Credit Suisse, Pacific Crest, Pacific Growth and Robert W. Baird.
Today, the stock was downgraded by Aaron Kessler, an analyst at Piper Jaffray, to Market Perform from Outperform. His view is that the shares are now fairly valued; he also sees “overhang related to the FRC investigation. Kessler adds that the company is likely to see increased competition from Google in 2008 and beyond as the search giant “makes display advertising a strategic priority.”
Finally, while he says an acquisition of the company is a possibility, he also says that a bidder war is unlikely, given that many potential buyers have already announced substantial transactions in the sector. If the company does get acquired, he says, a premium much above current levels is not likely.
Still, believers in the acquisition theory remain. Yesterday, Stephens Inc. analyst Kyle Evans raised his target on the company to $45 from $33, asserting that the company could receive $40 to $50 a share in a takeout bid. “We believe there are several capable and highly motivated buyers in the market…and that VCLK is the next logical target,” he wrote.
Youssef Squali, an analyst with Jefferies & Co., asserted in a research piece today that Yahoo’s purchase of Right Media is “too small to give Yahoo the competitive edge it’s seeking in the ad network segment,” and that ValueClick “would fill a gaping hole in Yahoo’s advertising arsenal.” His list of other potential bidders includes Time-Warner’s (TWX) AOL unit, IAC/Interactive (IACI) and Japan’s Rakuten, owner of LinkShare. Squali said he does not believe the FTC probe will be “a deal repellent.”
ValueClick today is down 46 cents at $32.17.
Source: feeds.barrons.infoSarbanes-Oxley Audit Rules To Ease; Bad For IT Spending; Good For Corporate Earnings One of the under-appreciated drivers of IT spending in the last few years has been Sarbanes-Oxley. While there is much complaining in Corporate America about the costs of compliance with the highly demanding accounting law, it has been something of a boon for the enterprise technology business, driving sales of software and hardware and creating [...]
One of the under-appreciated drivers of IT spending in the last few years has been Sarbanes-Oxley. While there is much complaining in Corporate America about the costs of compliance with the highly demanding accounting law, it has been something of a boon for the enterprise technology business, driving sales of software and hardware and creating a huge demand for armies of IT consultants.
I raise all this because the SarBox rules are about to change - in particular for the much-hated part known as Section 404. That section covers the auditing of corporate internal controls. On Wednesday, the SEC approved new guidance for how to implement Section 404. On Thursday, the Public Company Accounting Oversight Board will vote on the changes.
Okay, so now let’s get down to the nitty gritty: what does this mean for the markets, and in particular, for technology stocks?
Gerard Hallaren has been spending a lot of time thinking about that question. Hallaren, a long-time technology analyst, runs a technology research boutique he calls JRPG.com , using the initials of the four members of his familt. (As he points out, they also happen to stand for John, Ringo, Paul and George.)
Hallaren thinks the Street is missing the significance of the SarBox 404 changes. (Stop yawning, this is important.) Hallaren thinks the rule changes will cause a huge drop off in corporate spending on compliance: he sees $35 billion in SarBox related spending evaporating in 2008 - an amount he figures comes to a 7% hit to U.S. corporate IT spending.
The good news: he thinks the lower spending on SarBox compliance will boost 2008 corporate profits by 2 percentage points.
The first companies to feel the pain from lower spending on compliance, he figures, will be “body shops,” including Kforce (KFRC), Robert Half (RHI) and MPS Group (MPS). He also sees risks for companies that make content management and related analytics software, including Business Objects (BOBJ), Cognos (COGN), Open Text (OTEX), EMC’s (EMC) Documentum unit and IBM’s (IBM) FileNet unit. He’s not as worried about hardware sales, but in general advises simply avoiding investments in companies focused on enterprise technology. Says Hallaren: “I would want to be out of the enterprise.”
Source: feeds.barrons.infoMicrosoft: Goldman Sees At Least $170 Million In Halo 3 Revs In Q3, Driving Xbox Into The Black Microsoft (MSFT) has set September 25 as the official release date for Halo 3, the new version of its wildly popular first-person shooter for the Xbox 360. Halo 3 may not drive Microsoft’s financial performance with the same force as Vista and Office, but it really does matter to the company’s bottom line - and [...]
Microsoft (MSFT) has set September 25 as the official release date for Halo 3, the new version of its wildly popular first-person shooter for the Xbox 360. Halo 3 may not drive Microsoft’s financial performance with the same force as Vista and Office, but it really does matter to the company’s bottom line - and in fact could drive the company’s entertainment group, which includes Xbox, to a profit in the September quarter.
That’s the conclusion of Goldman Sachs analyst Sarah Friar. In a research note this morning, she forecasts that Microsoft will ship 4.2 million copies of the new game into the channel in September, generating an estimated $170 million in revenue for the company. Friar thinks that is a conservative estimate, and that the actual total could as much as $50 million higher. Friar notes that the retail price for the standard version of the game will be $59.99, up from $49.99. She also says her estimate on the number of consoles installed “could be conservative,” and says Xbox 360 sales could get a boost in the fall from both the release of Halo 3 itself, and from “a potential price cut” for the console, “perhaps in sync” with the game’s debut.
Friar says her base case for the game “pushes the segment into slight profitability for the quarter.”
Friar says the game has been timed to come out about a month before the October 16 launch of Take Two’s (TTWO) launch of Grand Theft Auto 4. “We believe the availability of Halo 3 before the launch of GTA4 is a strategic play by Microsoft to increase sales of Xbox 360 and to take sales away from Sony’s (SNE) PS3,” she wrote. “In our view, the audience for Halo 3 largely overlaps that of GTA 4, and thus a consumer purchasing Halo 3 will likely buy GTA 4 for Xbox 360 as well. Microsoft also need to launch Halo 3 about a month ahead of GTA 4 in order to mitigate competition between the two titles and allow time later in the fall for other titles to launch, a more partner friendly strategy.”
Friar this morning repeated her buy rating and $36 price target on the stock.
Microsoft is up 10 cents at $30.68.
Source: feeds.barrons.info
