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Video Game Sales Rebound—Good News for Earnings?

The turnaround may finally have arrived for the video game industry. March sales were up 6 percent compared with the 2009 numbers, marking the only positive growth the industry has seen since September 2009—and just the second month in the last 12 to show improvement.

Wii
AP
Wii

It’s widely expected to be the start of a series of year-over-year improvements, though, as comparisons get easier. And it could be the start of a revival in video game stock prices.

Overall, the industry had total sales of $1.52 billion, according to market research firm NPD Group. Sales of video game software, which analysts and investors pay the closest attention to, were up 10 percent to $875.3 million, versus $795 million in 2009.

The numbers came in slightly higher than analysts were expecting.

Hardware sales weren’t so lucky. Ongoing shortages at retail for the PlayStation 3 and Nintendo Wii dragged the numbers down by 4 percent to $440.5 million.

Nintendo once again topped hardware sales, with the handheld DS unit selling over 700,000 units, on the strength of two new “Pokemon” titles. The Wii was second, moving 557,500 units. Microsoft’s Xbox 360 was next, selling 338,400 devices and just shy of 314,000 PS3s were sold.

The encouraging data comes as earnings season looms for video game publishers. Activision pre-announced that first quarter revenue and earnings per share were likely to beat expectations, thanks to strong demand for its “World of Warcraft” and “Call of Duty” franchises (particularly with downloadable content for “Modern Warfare 2”).

Meanwhile, on Tuesday, analyst Shawn Milne of Janney Capital Markets raised his estimates for Electronic Arts, based on what he called stronger sales of key titles. And that optimism is spreading to the category as a whole.

“We expect an improved trading environment (for most of the sector) based on: 1) positive NPD comps; 2) upcoming E3 trade show in early June; 3) new motion-controlled services from Microsft [and] Sony that could boost hardware sales in Q4; and 4) potential for hardware price cuts,” he wrote.

So far this year, Activision, Electronic Arts and Nintendo have been the names that have dominated the Top 10 selling games—which could have a slight impact on their upcoming earnings. The bigger optimism is for the quarters moving forward, though, where overall industry sales are expected to be at least slightly higher than 2009, which was widely considered a disappointment.

Sony’s “God of War III” topped March sales, moving 1.1 million copies, while Nintendo’s two new Pokemon games sold a combined 1.78 million.

Year to date, overall video game sales are still down 7 percent—and only a few people are willing to go out on a branch to predict a positive year at this point. But the easy comparisons for the coming months, along with a strong catalog of games expected through the rest of the year (as well as early 2011) could be enough to re-energize investors and drive share prices higher.

“April, with its light lineup, is likely to be close to flat,” says Michael Pachter of Wedbush Securities. “However, with easier comparisons and the phenomenal May schedule, we think that sales growth is likely to rebound to double digits in May and that double-digit growth is likely to persist at least through September, if not for the balance of the year.”