PlayStation 2 Propels Related Shares
Sony Corp. won’t sell its first PlayStation 2 video game console in the United States until the end of October, but shares of companies expected to benefit from what looks like the hottest consumer item of the Christmas season already are rising.
Businesses as varied as mall retailer Electronics Boutique to big-box chain Best Buy to video game maker Electronic Arts should profit from an estimated $1 billion in PlayStation 2-related sales in October, November and December.
Shares of West Chester, Pa.-based Electronics Boutique Holdings Corp. have rallied 58% since late May, and shares of Redwood City, Calif.-based game publisher Electronic Arts Inc. have jumped 85% in almost the same time period. Both were at 52-week lows.
“Investors are starting to realize that PlayStation 2 will be a huge commercial success,” said Miguel Iribarren, an analyst with Wedbush Morgan Securities in Los Angeles.
Shares of game makers and other companies tied to the $7-billion industry slumped earlier this year because of consumer confusion growing out of the transition from earlier game machines such as Nintendo’s N64 and Sony’s first PlayStation.
Nintendo is working on its own state-of-the art console due out in 2001. And Microsoft is entering the field with its X-Box game player, also scheduled for next year.
For retailers, the road to PlayStation 2 riches will depend on how Sony decides to allocate shipments of the first machine in this series of new-generation video game players reaching the American market over the next 18 months. All three will have DVD movie players, can play music CDs and are expected to eventually feature Internet capabilities. Sony’s new machine will retail for $299; games will be priced at around $50.
“Sony will sell everything that it can ship,” said Matt Gravett, an analyst with PC Data Inc. in Reston, Va.
Sony executives have said they hope to ship as many as 2 million PlayStation 2 consoles to the U.S. between the launch date of Oct. 26 and the end of the Christmas season. Although the machine already is on sale in Japan, Sony has delayed its introduction in Europe to concentrate on the American market, expected to be the main industry’s battleground with Microsoft and Nintendo.
Jeff Griffiths, Electronics Boutique’s merchandising vice president, told analysts earlier this week that the 619-store chain expects to get 10% of the PlayStation 2 consoles Sony earmarks for the U.S. in the fourth quarter.
Such an allotment would propel PlayStation 2 merchandise to 20% of the chain’s fourth-quarter sales, according to Douglas Gordon of Banc of America Securities in San Francisco. Electronics Boutique had sales of $315 million in the 1999 fourth quarter.
The company can increase its share of future allotments based upon its ratio of games to machines sold. Electronics Boutique hopes to sell about five games and two accessories for each PlayStation 2 unit through the end of January. Its shares rose 6 cents on Friday, closing at $20.19 on Nasdaq.
“The big consumer electronics stores will do well too,” Gordon said. “PlayStation 2 is going to draw a lot of traffic into those stores.”
Because of its ability to play DVD movies, PlayStation 2’s rising tide should flow through the consumer electronics industry to the movie studios.
Its launch could push the equivalent of 2 million DVD players into homes by year-end, increasing the number of DVD players in the United States 20% to 25%, according to Consumer Electronics Industries Assn. statistics.
And it might spark a flurry of DVD movie purchasing that will help the studios and Best Buy, which controls about 25% of the retail DVD market, according to Gordon.
In Japan, 40% of the 3 million PlayStation 2 units sold since its introduction were to people who wanted its DVD capabilities, said James Lin, an analyst with Sutro & Co. in Los Angeles. It’s not clear however, whether the DVD feature will be as great a pull in the United States, if for no other reason than parents don’t like fighting with their children for control of the television, Lin said.
Despite its added features, the primary PlayStation 2 user will be the hard-core game player, Lin said.
That’s why Electronic Arts shares have risen so dramatically as investors in recent months began to see the potential for PlayStation 2 revenue, said Iribarren, the Wedbush analyst. Electronic Arts shares fell $1.56 on Friday, closing at $90.44 on Nasdaq.
Electronic Arts, which developed the “Madden NFL 2001” football game, the “FIFA 2001” soccer game, has channeled much of its research and development funds into PlayStation 2, Iribarren said.
“That was a smart strategic move that’s really going to pay off,” Iribarren said.
But PlayStation 2 also is giving other software publishers a bounce off their recent lows. A catalog of PlayStation 2 titles under development helped push shares of THQ Inc. of Calabasas Hills up 141% from low of $7.63 on May 25 to close up 44 cents at $18.38 on Friday.
Shares of Santa Monica-based Activision Inc. have climbed 141% from a recent low of $5.38 on June 23 to close down 13 cents at $12.94 on Friday.
“As all the new products are introduced, there is a lot of potential for this business over the next several years, and there are a lot of different companies that can benefit from it,” said Jim Smith, vice president of finance at Electronics Boutique.
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Rising tide:
Sony’s PlayStation 2 video game system will spur sales of games and DVD movies when it hits store shelves Oct. 26. Several game publishers and retailers have seen their stock price rise in anticipation that PlayStation 2 sales will boost their earnings.
