Microsoft Xbox One Cool, But Does It Really Matters To Earnings

Updated on

Microsoft Corporation (NASDAQ:MSFT) revealed at the 2013 Electronic Entertainment Expo (E3) that the Xbox One will be available in November and the price for the product is $499.

Microsoft Xbox One Cool, But Does It Really Matters To Earnings

Analysts at Nomura Equity Research believe that the Xbox One is cool citing its rich ecosystem of game content, realistic graphic and lifelike video, layers on top of set top box for personalized voice gesture commands with Kinect motion sensor, programming guide and Skype integration.

Xbox One Not Enough To Move Earnings Of Microsoft

However, the analysts believe that the Xbox One is not enough to move the earnings of Microsoft Corporation. They also noted that the price of the product is higher than the new Sony Corporation (NYSE:SNE) (TYO:6758)’s Playstation 4 at $399.

Nomura Equity Research analysts, Rick Sherlund together with Frederick Grieb and Xiaoyan Zhang, commented the Entertainment and Devices Division of Microsoft Corporation (NASDAQ:MSFT), which is primarily composed of Xbox consoles and games generates 13 percent of its revenues, but they emphasized that it does not make money if they allocate corporate overhead in proportion to revenues. They said, “It is hard to move the needle on earnings.”

They speculated that the original objective of Microsoft Corporation (NASDAQ:MSFT) is to compete with Sony Corporation (NYSE:SNE) (TYO:6758) and other rivals to gain a dominant position in the living room and to cross sell internet services and Windows related products.

“Awkwardly, Microsoft’s painfully late entry into the tablet and smartphone markets has been a much bigger lever for its competitors into the consumer market, and success with Xbox is not likely to boost Microsoft’s other consumer products to the degree that Microsoft might have once envisioned,” wrote Sherlund and his fellow analysts in a note to investors.

The analysts pointed out that “Xbox one cannot carry the burden alone” for Microsoft Corporation (NASDAQ:MSFT)’s growth in the consumer market. According to them, the company may not achieve its target position in the consumer space because of the strength of its competitors and the disintermediation of consumer PCs by smartphones and tablets.

The analysts said, “While we are personally eager to purchase Xbox One, it is left standing as an oddly positioned testament for Microsoft’s ambitions in the consumer space that are appearing to be less likely realized…We are left wondering if Xbox really matters to earnings or to the strategic direction of Microsoft.”

However, Sherlund and his fellow analysts still think that the shares of Microsoft Corporation (NASDAQ:MSFT) would go higher driven by solid enterprise business, and some shift in focus to cloud-based services. They also cited the possibility for greater activism that demands for steps to improve shareholder value.

The analysts recommended a neutral rating with $38 price target for the shares of Microsoft Corporation (NASDAQ:MSFT). The stock price of the company is down by nearly 2 percent to $34.84 on Tuesday around 2:08 PM in New York.

Leave a Comment