Janco Partners' Mike Hickey is estimating sales of 11.1 million units for Infinity Ward's Modern Warfare 2 in 2009, with a $338 million first day, suggesting it will end up "the largest video game release" of the year.
The analyst firm's Hickey currently has a 'Buy' rating for Activision Blizzard's stock, with a price target of $17, and says the following in the introduction to his analysis on the game:
"We believe Modern Warfare 2 will likely be the largest video game release for [calendar year] 2009. For the Company's fiscal Q409 period (Dec. ending), we anticipate the sell through to consumers of 11.1 million units for an estimated retail value of $803 million and sell-in approximating 12.4 million units, for an approximated sales value of $666 million (we assume demand is 90% of supply).
We believe current street consensus for fiscal Q409 unit ship ranges from 9.0 to 10.0 million units (Modern Warfare's sold through an estimated +7 mill units in fiscal Q408), suggesting potential upside to street expectations."
Tackling installed base and attach rate for the consoles that Modern Warfare 2 will launch on, Hickey explains:
"We estimate the combined Xbox 360 and PS3 installed base for US and Europe has grown +125% and +200%, respectively since Modern Warfare's November '07 release, ushering in a remarkably larger market opportunity for Modern Warfare 2.
We have estimated Modern Warfare life-to-date attach rates on the Xbox 360 and PS3 for both the United States and Europe and layered over the December '09 ending installed base estimates for our sell through scenarios. We meaningfully discounted each platforms life-to-date attach rate to arrive at our base case and worst case unit sell through estimates. In addition, we estimate that Modern Warfare has sold +2 million PC units, which we heavily discount for CY09 Modern Warfare 2 PC units sales estimates.
We believe that utilizing Modern Warfare's life-to-date attach rate is particularly relevant as historical software attach rates for franchise releases should normally deteriorate as the console installed base increases.
In addition, the longer term attach rate should be discounted relative the game's release quarter attach rate. We approximate GTA IV achieved a near term attach rate of +30% compared to roughly +20% life-to-date attach rate as of the end of April '09 (game has not held release pricing)."
Hickey then notes that Activision Blizzard management is "exceedingly focused on building pre-orders, given the potential for retailer sensitivity over initial holiday buys", suggesting for the game's debut:
"Given our CY09 sell through estimates for Modern Warfare 2, it's possible that the game could be one of the largest entertainment releases of all time. If you assume similar channel unit sales velocity as GTA IV, the game could potentially sell through 7.8 million units globally with an estimated retail value of more than $569 million in the first week.
Continuing the same channel logic, it's possible the game could sell through to consumers' 4.6 million units globally with an estimated retail value of more than $338 million in the first day. We believe they would need 3.2 million pre-orders (1.13 mill from Europe and 2.10 mill from US) to hit 4.6 million first day unit sales."
Finally, Hickey tackles and calculates the notable fan base already in place for the Call Of Duty and Modern Warfare franchise, commenting:
"We believe Modern Warfare 2's sales opportunity will directly benefit from the estimated 13 million Call of Duty 4: Modern Warfare unit sales, and the silent fan base represented in used / rental and or borrowed uses of the game. The silent fan base represented through used sales is particularly relevant given the distant holiday '07 release, suggesting the franchise has meaningfully advanced its fan base beyond frontline retail sales numbers.
On May 26th 2009, Infinity Ward's community manager Robert Bowling "fourzerotwo" commented that Call of Duty 4 has over 13 million unique users on Xbox 360. A particularly impressive number considering an estimated +30% of Xbox's installed base is not connected to Xbox Live. On January 8th 2009, Bowling estimated that there were over 4 million unique online users on the PS3 platform and over 10 million on the Xbox 360. We assume the PS3 unique users have now eclipsed 5 million based on Xbox 360 identified online user growth of 30%.
We estimate that there are currently over 18 million unique online users on both the PS3 (5 million unique) and Xbox 360 (13 million unique), meaningfully above the estimated 13 million packaged good sales at retail. If you assume 30% of the franchise's fan base is not connected online, you can assume a total Modern Warfare fan base of 25.7 million gamers.
In addition to the success of Modern Warfare, we believe the potential Modern Warfare 2 fan base grew with the holiday '08 release of Call of Duty: World at War, which management suggested 1/5 of buyers were new franchise gamers. The game has sold an estimated 11 million units in 6 months, suggesting an additional 2 million potential Call of Duty: Modern Warfare 2 consumers this holiday."