For decades now the gaming industry has been a significant one and given rise to major companies such as Nintendo, Sega and Ubisoft. Larger companies in the electronics and software sector such as Microsoft and Sony have also built major units on the back of the growing section of the home entertainment industry.
20 years ago gaming was a pastime for kids and teenagers. But the generations who started gaming in the 80s and particularly the 90s never quite grew out of it as hardware grew more powerful and games evolved in sophistication. The industry grew up with the earning power of its original demographic. And adult gamers were happier to spend more money on gaming products for their own kids than their parents were.
In recent years the rise of mobile gaming has again taken the sector to a whole new level. Mobile gaming has attracted a new audience – one that didn’t and was unlikely to ever be converted to PC or console gaming. An older demographic and one that included many more women. Leisure industry market researcher Playgroundz found that women accounted for 68% of mobile gaming revenues in 2018.
A new revolution in the gaming sector, one that looks likely to take it even more mainstream and keep older generations playing, and spending, is set to kick off this year. Gaming-as-a-service, either through cloud-based streaming services or access to extensive game catalogues for a flat monthly subscription, is arriving. And it’s drawn the really big boys of the digital economy into the sector.
Google (Alphabet) and Apple have both announced new gaming platforms – Stadia and Arcade. Amazon is expected to follow. They will pour billions into developing new titles and extending the sector’s reach and revenues. And they have the platform to do so, having already locked most of the developed world into digital ‘ecosystems’ that extend across smartphones, platforms and software and other online services and platforms most of us already use every day.
Since 2012 the gaming sector has delivered a compound annual growth rate (CAGR) of 11% – growing from a value of $70.6 billion to $138 billion in 2018. This year gaming sector revenue is forecast to hit $150 billion and by 2021 have grown to $180 billion, represent a CAGR of 10.3% over the four year between 2017 and 2021.
And there is no sign of that slowing. As new repeat revenue-model subscription services and technologies such as AR (augmented reality) and VR (virtual reality) begin to come of age, if anything it can probably be expected that gaming takes an increasing role within the home and mobile entertainment mix.
A symptom of that is the quickly growing eSports market for competitive video gaming. It’s becoming a whole sub-industry in itself and now attracts bigger audiences, online and offline in stadia, than all but the most popular traditional sports. Older generations of gamers, even relative diehards, still struggle with the concept of being a video gaming ‘audience’.
eSports audiences are a young demographic. But are we not likely to see a similar trend to that which sees a significant chunk of 90s gamers still gaming into adulthood? Today’s youngsters may well still be watching eSports in their 30s and 40s. The industry seems to think so, investing heavily in the sector, buying up franchises and building purpose-built eSports arenas for live audiences.
5 Gaming Stocks For Investors to Watch
The stellar growth rates of the gaming industry are also, naturally, being reflected in the revenues generated by companies in the sector. Many of the biggest games publishers are now publically listed companies and their stock can be bought and sold via online stock brokers. Which means investors can gain direct exposure to the sector’s expected growth over coming years.
Unfortunately, there isn’t yet a dedicated index of gaming stocks that allows investors undiluted, diversified exposure to the sector without having to pick their own stocks. There is one ETF available – the U.S.-based ETFMG Video Game Tech ETF but it’s not currently possible to buy it via the major UK online investment platforms and stockbrokers. That’s certain to change within the next couple of years as the sector continues to develop.
But in the meanwhile, here are 5 gaming stocks to keep an eye you can buy through almost any major UK-based online stockbroker and look like they could offer some very strong potential over the next few years.
The biggest gaming company in the world is China’s Tencent Holdings. It is perhaps not as well known a brand in the West as it should be but the company is the market leader in China’s mobile gaming sector – the world’s biggest.
Tencent is also well diversified into PC and console gaming. It owns a 40% stake in Epic, the publisher behind Fortnite, the hit game that has swept the globe over the last year. Tencent is also behind internationally played titles such as League of Legends, Player Unknown’s Battlegrounds and the new smash hit Arena of Valor. Fortnite alone is estimated to have brought in 2018 revenues of somewhere around $2 billion.
Tencent’s share price saw a slump last year as a result of China’s regulators unofficially halting the issue of licenses for new games titles due to concerns too much time is being spent on video games. It’s started doing so again now though and the share price has recovered well this year.
However, it is still below last year’s highs and looks to have plenty of growth potential and positive momentum left in it for new investors to take advantage of.
The most successful pure games publisher in the world, Activision Blizzard is behind many of the most popular gaming titles in the history of the sector.
World of Warcraft, StarCraft, Diablo, Hearthstone, Heroes of the Storm, Overwatch, Call of Duty, Candy Crush Saga, Farm Heroes Saga, Pet Rescue, and Bubble Witch is to name just the real stars of the Activision Blizzard catalogue. 500 million gamers across almost 200 countries play the company’s titles every month.
Activision is also getting into the rapidly growing eSports market in a big way. It really signed a partnership with Disney to broadcast its Overwatch League competitions live on prime time ESPN – the sports channel.
The company is also now branching into making television and film content based on its franchises. Could gaming franchises give Marvel a run for its box office money over the next decade? If they do Activision Blizzard will almost certainly be the company to capitalise on that.
Like most of the tech sector, Activision Blizzard’s share price took a heavy hit in autumn last year, plummeting 45%.
It’s recovering more slowly than Tencent which means there is still time for new investors to get in on what must surely be a recovery sooner or later. Before October’s share price crash, Activision Blizzard was trading at a P/E ratio of more 30 times forward earning. Today that is 22.86, which appears to offer plenty of space for growth.
Take-Two Interactive, behind the Red Dead Redemption and Grand Theft Auto franchises, is another major games publisher whose share price dived last October and is yet to seriously recover.
Historically, Take-Two’s profitability and revenues were extremely volatile as the company went through cycles of investing large sums into developing news games during the gaps between revenue booms after hit releases. However, having now built up its catalogue the company is consistently profitable and attractively so. The hits also keep coming and Red Dead Redemption 2 was 2018’s best-selling gaming title.
A move into sports franchises with basketball title NBA 2K has also been a success (the game was North America’s 3rd best seller in 2018) and positions Take-Two well for growth in the eSports sector which its titles have not, until now, been a natural fit for. 2018 saw the company record record-high recurring revenues. The company’s 2017 acquisition of Social Point also marks a more concerted move into the lucrative mobile gaming sector.
Take-Two has no debt and has amassed a huge $1.6 billion war chest of cash. That balance sheet means investors can probably expect some notable acquisitions over the next couple of years as the company looks to cement its growth trajectory.