When it comes to companies in the video game industry, not all businesses are created equal. Hardware makers like Sony (NYSE:SONY) and video game developers like EA (NASDAQ:EA) typically see a sharp increase in sales during the holiday quarter, as gift-givers make big-ticket purchases. This differs from other video game companies that see steadier demand throughout the year and underscores how crucial it is for certain companies to nail the upcoming quarter.

In this video from Motley Fool Backstage Pass, recorded on Oct. 18, Fool analyst Sanmeet Deo and contributor Jon Quast talk about the upcoming holiday season and which companies need to get it right. But with supply chain disruptions, it might not be an easy task.

Sanmeet Deo: Definitely affecting gaming is chip shortages and supply chain issues. The buzz words that are going to be heard for a while, probably the rest of this year, especially now with earnings season coming along. That's something that we're going to be watching for especially with these gaming companies. How often they're talking about it, how they're seeing those affects their businesses.

Another thing I mean, Jon, I don't know if you have, but I keep hearing how you need to do Christmas shopping now. [laughs] I don't know if you've heard that, but there's going to be a lot of shortages and issues with getting, now let's say if you're trying to get, I think the PS5 last year during the pandemic was a pretty hard get. It was hard to find it. I think also because it was just launching.

But have you started to do any Christmas shopping, especially the activities big ticket electronics goods?

Jon Quast: No. I start Christmas shopping around Dec. 21st or so. [laughs] One of those people very much unprepared.

Let me pull something up. It bears mentioning now that you are bringing up the Christmas season, how important it is for some video game companies, the fourth quarter.

Here we go. This is a chart showing Activision Blizzard (NASDAQ:ATVI), Take-Two Interactive (NASDAQ:TTWO), Electronic Arts, and Zynga (NASDAQ:ZNGA). This is quarterly revenue. As you can see, many times we have spikes in revenue right around the holiday season, the fourth-quarter sales. Zynga is completely different. As you can see, the trend line here, it's a lot more stable. Why is that? Because some of these companies, like your Activision Blizzard, like your Take-Two, or even your EA games, these companies are launching games at certain times of the year corresponding to consumer spending. We're going to talk about this later in the show, some upcoming game releases for the fourth quarter.

This is very strategic. They're timing this in so you really have to nail the holiday quarter because it's such a big part of your business year-in and year-out. If you don't have a successful launch during that quarter, it really such a back for the year. Whereas something like Zynga, we talked about on the show before with Zynga as a mobile game company. The difference between watching those bookings and watching the revenue. The bookings basically when the money is deposited into the platform and then the revenue when it's actually spent.

Because of how these games on Zynga are structured, the revenue is a lot more stable. It's not so quarter dependent. You're going to make those deposits whenever you do. There should be spikes in bookings, but not so much spikes in revenue because you're just going to keep playing the game. You're going to be spending a little bit over time.

For a company like Activision Blizzard or EA, the upcoming quarter is really big one. But then also for your hardware makers, your companies that are really counting on those big ticket purchases from parents for the kids, it's very important and if they can't keep the products on their shelves, if they are constrained by the supply chain issues that are going on, if they got stuff that sitting out in the Pacific that can't be offloaded in California, I mean, it's going to be a hard time because you don't make those sales up in the first quarter. Because the gifting season has passed. You'd have the parents don't go out and say well we couldn't get this for you for Christmas, but here's your happy Easter. It happens way less. Yeah, way less sales.

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