Over the past several years, Microsoft Corp. (MSFT, Financial) has performed amazingly well. The story is the same this year as the stock is up more than 13% year to date. The tech giant’s impressive run throughout the years, however, has forced many shareholders to consider whether there is room left for the company to grow further.
According to a report from newzoo.com, the global games market is projected to reach $108.9 billion this year, with the console gaming segment accounting for 31% of the overall market. Currently, Sony Corp.'s (SNE, Financial) PlayStation 4 holds the leading position in the game console market as the company has sold more than 60 million units.
In 2016, Sony sold 12.3 million PS4 units, capturing a total of 57% market share. In contrast, Microsoft sold just 5.83 million Xbox One units. Since the launch of Xbox, Microsoft has turned itself into one of the dominant hardware players in the gaming industry, lagging only behind Sony. The company’s Xbox Live platform currently boasts around 50 million active users.
Moving ahead, Microsoft discussed its latest project last year, which the company claimed will be the most powerful console to date. As expected, the company showcased its Xbox One X at the Electronic Entertainment Expo 2017. The new console is scheduled to launch on Nov. 7 for $499.
Microsoft’s Xbox One X features a six-teraflop graphics processing unit and has 12 gigabytes of GDDR5 memory. Moreover, the console is capable of displaying true 4K resolution gaming and supports high dynamic range content (HDR) and premium Dolby Atmos sound. Most significantly, the latest console was enhanced with backward compatibility, enabling it to play all existing Xbox One games.
While the Xbox One X has better features than the PlayStation 4 Pro, it is yet to be seen how the console will help Microsoft counter PS4 sales. Apart from this, the tech giant also announced 42 games for the Xbox One X, including 22 games exclusive to the console.
Sony launched the PS4 Pro in the second half of 2016. It will likely not release another version for at least one to two years. If that is true, Microsoft will have a chance to steal market share from Sony.
On the other hand, the tech giant also announced that every game designed for Xbox will be released for Windows 10. The company is aiming to make gaming more accessible and connect Xbox users with the entire Microsoft ecosystem. This initiative will leave the company’s Xbox platform without exclusive titles, which could hurt its sales in the long run.
One important thing to keep in mind is exclusive games do matter. While Sony has released a variety of games, Microsoft has not quite found its footing. Among the top 50 Xbox One games, there are only a few exclusives. Moreover, some of its largest franchises have struggled to match the sales of prior installments.
Sony is about to launch a new Spider-Man game exclusively for PS4. After viewing the trailer, it appears it will be successful. Sony’s amazing exclusive games are one of the main reasons why PS4 sales are healthier than Xbox's.
Microsoft, however, is focusing on the bigger picture and its gaming initiatives are now going to be more connected to its overall strategy. The company currently generates strong revenue from its gaming segment, which will continue to grow in the near future.
Summing up
Both Microsoft and Sony look well positioned to benefit in the coming years considering the healthy outlook of the global gaming market. Microsoft’s upcoming Xbox One X looks promising and will likely create problems for Sony. Moreover, the new console will help the tech giant improve its position in the gaming industry.
One significant competitive advantage Sony has over Microsoft, which will influence competition and sales, is its comparatively more popular exclusive games. Apart from gaming, Microsoft’s other segments continue to produce strong results, especially Azure.
Microsoft stock offers a healthy dividend yield of 2.21% but currently trades at a price-earnings (P/E) ratio of 31.2, suggesting it is slightly overvalued. As a result, investors looking to initiate a position in the stock should wait for a dip as it currently trades near a new all-time high.
Disclosure: No position in the stocks mentioned in this article.
