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Videogame Stocks Fall On Weak December Sales

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Preston Waters

Videogame stocks slipped across the board Friday as investors digested data showing the sector rang up a disappointing level of sales in December despite the typically strong holiday shopping season.

Late Thursday, NPD Group reportedsales of game software through traditional retail outlets in the U.S. fell by 14% during the month, compared to the same period at the end of 2010.

The consensus among analysts covering the sector was for a largely flat performance for the month, though some predicted a small decline. The release of popular games such as “Call of Duty: Modern Warfare 3” in early November made the holiday sales period more “front loaded,” according to Colin Sebastian, analyst with Robert W. Baird.

NPD “confirms our field checks that video game sales were front-loaded to November and early December, before falling off in mid-December,” Sebastian wrote in an e-mail on Friday morning.

Sales of game hardware skidded further, down by 28% compared to the previous December. Analysts said most of this reflected a sharp decline in sales of the Wii home console from Nintendo Co. NTDOY -2.56%   JP:7974 -1.34% , though NPD doesn’t make public unit sales of individual consoles.

Nintendo’s U.S.-listed shares shed 2.5% on Friday morning to $16.75, while rival console maker Sony Corp. SNE -0.70%   JP:6758 +0.61%  saw its own U.S. shares dip 1%. Microsoft Corp. MSFT -0.18%  which makes the Xbox 360, was down about 0.6% in the early going, as Wall Street fell prey to a broad-based pullback.

Analyst Doug Creutz of Cowen & Co. said weak sales reported for December were more of a “Wii problem” than reflective of the entire industry. He noted that software sales for the high-definition Xbox 360 and PlayStation 3 platforms averaged a gain of 9% for the month.

“Our estimates contemplated a decline in Wii software (mainly catalog sales) that was roughly half the actual result,” Creutz wrote in a note to clients.

NPD’s monthly sales data reflect only software sold through traditional retail outlets and don’t account for sales through digital channels, which is a growing part of the game industry’s business.

Still, shares of game publishers fell across the board on Friday. Electronic Arts EA -5.51%  was last down more than 5% to $18.47, while Activision Blizzard ATVI -2.07%  fell about 2.4% to $12.26. Take-Two Interactive TTWO -1.03%  fell by 1.7% while THQ Inc. THQI -5.64%  dropped nearly 5.3% to 67 cents.

EA’s shares also may have been affected by news late Thursday that Barry Cottle, who has been running the company’s EA Interactive business, left the publisher to joint social game maker Zynga ZNGA +0.48%

In an email to employees, EA said it was reorganizing its digital business within the company, which hit $1 billion in revenue for the 2011 calendar year. The company will be folding EA Interactive into its existing business departments, explaining it’s “abundantly clear that the digital transformation is not confined to one group.”

Also Friday, shares of retailer GameStop Corp. GME -2.30%  traded down 2.4%. They’d fallen by 3.5% earlier in the week as the company issued its own disappointing sales report for the holiday period.

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Preston Waters

Preston Waters

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