Fans and investors of next-generation video game consoles are fixated on which console will win out and produce the highest number of sales. Very limited sales information is currently available, but it appears that Microsoft's (NASDAQ:MSFT) Xbox One and Sony's (NYSE:SNE) PlayStation 4 are in a dead heat for the coveted top console spot. The limited sales figures reported at this time put the PS4 at 2.1 million sales in the 18 days following its release and the Xbox One at 2 million sales in the two weeks following its release.
While it's fun to speculate which company will win out in the next-generation console contest, investors need to keep in mind that console sales need to lead to profits. The company that can walk away with the greatest net profit from the sale of gaming consoles and accessories will be the true winner in the end. Sony may have strategically beat Microsoft in the revenue game by marketing the PS Vita as a companion device to the PS4.
The PS Vita is not a new device by any means, but the handheld gaming platform offers a new feature: PS4 Remote Play. This feature allows users to connect and play PS4 games on the PS Vita. Recent reports have indicated that PS Vita sales rose by 68% after the PS4 launch and 65% in the following week. Sony has indicated strong sales of the PS Vita following the launch of a marketing campaign that highlights the PS Vita's PS4 Remote Play and stand-alone features.
Sony is beating Microsoft to the punch by leveraging the PS4 to sell additional PS Vita devices. The company's marketing of two collaborative gaming devices should help boost sales in the third quarter of 2013. Sony needs to improve company sales: it reported a disappointing 9% decrease in sales in the second quarter of 2013, as compared to the same quarter of last year.
Investors need to keep a close eye on Sony's profitability. The company reported a second quarter loss of of $197 million. Look for sales of the PS4 and PS Vita to help push the company back into profitability.
Games help drive PS Vita sales
Gamers are thrilled about the PS Vita's ability to play powerful PS4 games such as Activision Blizzard's (NASDAQ: ATVI) Call of Duty: Ghosts. Popular game franchises such as Call of Duty will likely be the main driver for the continued sale of PS Vitas. Never before have gamers had the ability to play such powerful and resource-intensive games on a handheld gaming device.
Activision Publishing is showing excellent growth. The company reported revenue of $320 million in the third quarter of 2013, which is a 14% increase as compared to revenue reported in the third quarter of 2012. These strong sales are needed to help prop up Activision Blizzard, which reported declining revenue in the last quarter. Activision Blizzard reported revenue of $657 million in the third quarter of 2013, which is down from $751 million in the third quarter of 2012.
The recent release of the Call of Duty: Ghosts should help expand revenue for the company. The game franchise has a very loyal following that will continue to purchase game expansions throughout the year, leading to more sales down the line. Fourth-quarter sales are going to be a key indicator for investors to determine whether or not the company can expand its revenue through its latest game releases.
Xbox One's Kinect
Microsoft has differentiated the Xbox One from the PS4 by adding features such as the new version of the Xbox Kinect. The Kinect allows users to interact with the console using voice activation and body motions. This is a great feature for users that are looking for a more interactive game environment or the ability to control the console via voice commands.
The downside of Microsoft's decision to include Kinect in the Xbox One is that it is a contributing factor for the high retail price of $499.99, which is $100 more than Sony's PS4. Microsoft will likely lose out on sales from budget-conscious gamers, though the true effect of pricing will not be known until more elaborate sales data becomes available.
Microsoft has shown excellent growth. The company reported revenue of $18.5 billion in the first quarter of 2014, which is a 16% increase in revenue as compared to $16 billion reported in the first quarter of 2013. Investors need to keep an eye out for a boost in revenue in second quarter sales due to the launch of the Xbox One.
The extra revenue generated by Xbox One consoles should help pay for the development of the console and Microsoft's $700 million investment in data centers to power the Xbox One and Office 365. Microsoft has proven that the company is profitable with a reported net income of $5.2 billion in the first quarter of 2014. Investors should look for the sale of Xbox One consoles to help boost company profits and help reinvest in new technologies.
The bottom line
Sony wins points for strategically leveraging the PS4 to help sell more Vita handhelds. The additional sales of the PS Vita will help the company to generate more revenue through the PS4 launch. Sony may win out this time, as not only did it release a next-generation gaming console but it also boosted sales for an additional gaming platform.
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Ryan Sullivan has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.