Jefferies & Co. increased its earnings and revenue estimates of Microsoft Corp. (MSFT) on strong sales of Kinect hardware and software.
"We have lifted our forward estimates for Microsoft due to strong sales of Kinect hardware and software. It appears that Kinect is also pulling through a significant amount of Xbox 360 console revenue, especially for the high end 250 GB devices. We foresee a variety of future uses for the Kinect technology, including multi-modal gaming, natural movement navigation, and 3D gaming," said Katherine Egbert, an analyst at Jefferies.
Overall, Egbert thinks Kinect-related software and hardware sales could add $1.6 billion in revenue to fiscal 2011 and $2.2 billion for fiscal 2012. If you recall Xbox Live Revenue recently exceeded $1 billion. If these Kinect estimates hold true, Kinect is posed to exceed Xbox Live as the biggest revenue generator of the Xbox platform.
According to NPD, within one month of availability Kinect became the 'top-selling accessory item in terms of dollar sales on a year-to-date basis'. Twenty-five days after the release of Kinect, Microsoft reported the sale of 2.5 million Kinects to end users, a run rate of 100,000 units per day.
"The company expects to sell through five million Kinects this holiday season, and our proprietary checks at over 55 US retailers indicate widespread sellouts and high demand," said Egbert.
"If Microsoft does reach the five million unit figure by December 25, it will mean that Kinect is the fastest-selling device of all time, selling 2.5 times faster than Apple Inc.'s (AAPL) iPad -- 100,000 units per day for Kinect over the first 50 days vs 36,000 iPad units per day for the first 27 days," said Egbert.
However, Kinect sales are likely to slow post the holiday season, Jefferies said in a note to clients.
"Still, the technology has applicability beyond gaming, and we see Kinect as an important psychological win for Microsoft as it seeks to regain relevance in consumer tech. We believe the device has implications beyond gaming and the potential to significantly change the way people interact with technology," said Egbert.
"Based on our survey of 55 retail stores in the US earlier this week, it appears that the $150 standalone Kinect is sold out nationwide, as is the $399 250GB Xbox/Kinect bundle," said Egbert.
Egbert said the survey found a few retailers with the $299 Xbox 4GB/ Kinect bundle in stock, and some stores were expecting new shipments this week, but typically for only a few units per store. Kinect was a worldwide launch, but the survey was only performed checks inside the US, said Egbert.
Egbert finds it interesting that both the high-end 250GB bundle and standalone sensor are in highest demand. The sell-out of the high-end SKU may mean that Kinect is winning over the hard-core gaming crowd, or that it is potentially being seen by the casual user as more than just a gaming hub.
"While it seems too early to call a turn in investor sentiment on Microsoft stock, we think Kinect’s success has the potential to turn the current negative sentiment into a more neutral attitude. Microsoft shares are up over 2 percent since Kinect’s debut on November 4," said Egbert.