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Microsoft At E3: 52 Games, 5 Gaming Studios, New Xbox Coming

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Microsoft Corporation MSFT literally stole the limelight at the ongoing Electronic Entertainment Expo (E3) 2018 on Jun 10. The company unveiled 52 games, comprising 15 world premieres, 18 Xbox One and Windows 10 exclusives.

With a view to enhance the exclusive gaming content, Microsoft announced its newly developed gaming studio, The Initiative. The company has acquired Playground Games, and intends to buy Compulsion Games, Ninja Theory and Undead Labs. Notably, Microsoft doubled its gaming studios with this announcement.

We believe the acquisitions will significantly expand the gamer base. The company is well poised to benefit from the operational efficiencies and the combined innovative skills. These factors are likely to bolster originality in its gaming content. Furthermore, the expanding game portfolio bodes well.

According to Phil Spencer, head of Gaming at Microsoft, “There has never been a more exciting time to be part of the gaming industry, with creators large and small showcasing incredible new games for the more than two billion players around the world.”

ML Enhances Gaming Experience

Microsoft announced new digital innovations by leveraging its Machine Learning (“ML”) Team and Gaming Cloud Team. The new innovations boost accessibility, consequently enhancing console quality gaming on any device.

Microsoft announced FastStart which accelerates gameplay significantly.

The company expanded the Xbox Game Pass with new blockbuster titles for members. Moreover, it remains elated on Xbox Game Pass performance. Per the press release, Xbox Game pass increased the number of titles by approximately 40% and gameplay hours by 20%.

The company’s live streaming service, Mixer is also witnessing impressive growth. The viewership almost doubled to 20 million in six months time, majority stemming from users on mobile.

Upcoming Xbox Console

Microsoft is leveraging artificial intelligence (“AI”) technology to give shape to future gaming scenario. Reportedly, the company's hardware team is working on the development of the next Xbox console, which is expected to set the standard for console gaming. However, the details pertaining to the new console have been kept under wraps.

We believe, the new console is likely to help the company gain momentum against Sony as well as other industry peers like Nintendo. The improved technical features, which will eventually lead to higher resolution and faster loading of the games, are expected to add to its customer base.

Pricing & Availability

Microsoft lowered the price of all its Xbox One consoles by $50.

The company also announced that pre-orders for Xbox Adaptive Controller, designed for differently-abled gamers, will begin from Jun 11.

Microsoft Gaming Segment Highlights

In the third quarter, Microsoft’s gaming revenues increased 18% (16% at constant currency) to $2.25 billion, driven by robust performance from Xbox software and services (up 21% at cc). Xbox Live monthly active users were up 13% to 59 million active users.

For the fourth quarter of fiscal 2018, Microsoft anticipates Gaming revenues to grow at a higher rate due to benefits from third-party game title performance and improving user engagement.

What Investors Need to Know

Microsoft is likely to gain traction in the gaming industry with the aforementioned positive developments. Per Statista, PlayStation 4 dominated the console market by generating 19.64 million unit sales in 2017, Nintendo Switch reported 11.85 million units coming second, while Microsoft’s XBox One sales came in at 8.21 million units.

The company’s announcement of upcoming new Xbox console keeps us inquisitive about whether it can get an edge over the forthcoming Sony PlayStation 5.

The company’s increasing investments is likely to expand its reach and drive innovation. Microsoft is not only focusing on exclusive original content but also making gaming accessible for all users, including mobile users. This is likely to keep gaming revenues churning, going forward.

Zacks Rank & Key Picks

Microsoft currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector worth considering are Western Digital Corporation WDC, Mellanox Technologies, Ltd. MLNX and Micron Technology, Inc. MU, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Western Digital, Mellanox and Micron are projected at 19%, 15% and 10%, respectively.

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