- Investing in Video Game Stocks
- 1. Capcom
- 2. Take-Two Interactive
- 3. Tencent Holdings
- 4. Activision Blizzard
- 5. Electronic Arts
- Related topics
- The COVID-19 Consoles Thriving in Lockdown
- Leveraging the brands
- Balancing the mix of work
- Extending the game lifecycle
- Reliance on the service providers
- Gaming Boom in COVID-19 times: Analysis & Insights
- The changing business model
- COVID-19 has boosted engagement with video games
- The surge in online casino gaming and fantasy sports betting
- The impact of COVID-19 on Esports
- Long-term transformation
Investing in Video Game Stocks
Updated: Jan. 4, 2021, 9:26 a.m.
The video game industry is a large, fast-growing market that still has lots of potential.
Top players in the space have thrived this year amid conditions created by COVID-19, and the impressive performance has highlighted gaming’s appeal as a resilient growth industry.
Despite social-distancing and work-from-home measures creating new challenges to game development, player engagement is soaring.
Companies that can continue adapting to — and shaping — players’ demands for interactive electronic entertainment could be poised to deliver great returns for shareholders.
With that in mind, Capcom (OTC:CCOEF), Take-Two Interactive (NASDAQ:TTWO), Tencent Holdings (OTC:TCEHY), Activision Blizzard (NASDAQ:ATVI), and Electronic Arts (NASDAQ:EA) stand out as top gaming stocks for the long term.
Image source: Capcom
Video game developer and publisher Capcom (OTC:CCOEF) is thriving thanks to successful releases that have strengthened its key franchises.
Hit titles in its Resident Evil and Monster Hunter franchises have driven impressive sales and earnings growth, and the company has a strong set of properties beyond those two core pillars.
It owns franchises including Mega Man, Devil May Cry, and Street Fighter in addition to a deep library of lesser-known but beloved classics.
There are many reasons to this long-standing Japanese business, which has been an industry stalwart for decades and created some of the medium’s most memorable experiences.
Capcom also pays a dividend, and aims to return roughly 30% of its annual profits to shareholders through dividend payments. Earnings can be erratic in the video game industry, but management has established returning cash to shareholders as a core part of stock ownership.
2. Take-Two Interactive
Image source: Take-Two Interactive
Take-Two Interactive (NASDAQ:TTWO) has grown rapidly thanks to stellar performance from its core franchises, and the business looks well positioned to continue delivering strong results over the long term. Grand Theft Auto is the company's biggest and most important property — and one of the most profitable series in all of entertainment.
But the game maker has also been making commendable progress building its overall slate. Take-Two’s Red Dead Redemption series has proven to be a huge draw. Its NBA 2K basketball series is a leader in the sports-game category. And the company has a variety of smaller series and other development initiatives that could help drive growth.
Game development is typically complicated and resource-intensive, but Take-Two’s top development studios have repeatedly risen to the task and delivered products that delighted players and recorded high levels of engagement and in-game spending. With its fantastic development talent and trio of highly profitable core franchises creating a strong foundation, the company has room to pursue new growth opportunities in categories including mobile games and esports.
3. Tencent Holdings
Image source: Tencent Holdings
Tencent Holdings (OTC:TCEHY) is a Chinese multimedia conglomerate that's also the world's largest video game company by revenue. The company's strength in multimedia, its dominant WeChat social network, and its holdings in other gaming companies make it uniquely compelling as a diversified investment in technology and content.
Tencent's hit game League of Legends has been going strong since its release in 2009 and stands as a top draw in esports, and the company is also responsible for the hugely popular mobile game Honor of Kings. In addition to Tencent’s internally produced and operated titles, the company owns substantial stakes in video game publishers including Epic Games, Supercell, Activision Blizzard, and Ubisoft (OTC:UBSFF).
4. Activision Blizzard
Image source: Activision Blizzard
Activision Blizzard (NASDAQ:ATVI) is America's largest video game software company by revenue and combines three main developing and publishing divisions: King Digital mostly does mobile games, Activision has primarily been focused on console platforms, and Blizzard has been responsible for some of the biggest hits in PC gaming. All together, the company has one of the most bankable collections of video game properties in the industry, and it has shaped and benefited from trends including the rise of digital distribution and the sale of in-game items.
The publisher is responsible for big game franchises including Call of Duty, Overwatch, World of Warcraft, and Candy Crush Saga, and it’s also an early leader in the esports space.
Under the leadership of CEO Bobby Kotick, Activision Blizzard has a great track record of releasing games that have staying power and keep existing fans engaged while attracting new players, and the company has consistently paid a dividend since 2010.
5. Electronic Arts
Image source: Electronic Arts
Founded in 1982, Electronic Arts (NASDAQ:EA) has played a defining role in the progression of the interactive entertainment industry and is the U.S.’s second-largest video game company by revenue.
The company has a leading position in the sports-game genre thanks to popular licensed franchises such as Madden NFL and FIFA, and it’s also got a stable of high-profile original properties including The Sims, Apex Legends, and Battlefield.
The global popularity of video games will ly continue to grow in coming decades, giving leading publishers opportunities to reach new players and expand sales in emerging geographic markets.
EA’s dependable lineup of gaming franchises and experience developing and marketing titles that resonate with players should help it tap into that growth, and continued expansion for digital software distribution and the sale of virtual items should help boost sales and margins as well.
Increasing interest in watching others play video games as spectator entertainment makes this an new opportunity for investors.
Updating to the newest generation of wireless technology is a large, global undertaking.
Makers and distributors of films, TV shows, music, and other programming.
A vast sector that often overlaps with the video game industry.
People love entertainment, and video games offer a range of experiences that can prove uniquely compelling. Leading companies in the video game biz should continue to benefit from growth trends that are helping the market to expand around the world and have the potential to deliver strong performance for shareholders.
While video game companies will probably be hit with some unexpected twists and turns, there's a great chance that global demand for games will continue to grow. There's still huge potential in the world of interactive entertainment, and for growth-seeking investors, this dynamic means that it's worth adding some gaming stocks to your portfolio.
This Chinese live-streaming video platform achieved some strong milestones in 2020.
Lawrence Nga | Mar 26, 2021
The Chinese tech giant's stock looks cheap — but it will ly remain on sale until the antitrust headwinds dissipate.
Leo Sun | Mar 26, 2021
Its recent sell-off makes this a great time to buy in.
Jose Najarro | Mar 25, 2021
TCEHY earnings call for the period ending December 31, 2020.
Motley Fool Transcribing | Mar 24, 2021
The company secures key team members from a partner.
Eric Volkman | Mar 24, 2021
HUYA earnings call for the period ending December 31, 2020.
Motley Fool Transcribing | Mar 23, 2021
Remastered versions of older “Grand Theft Auto” titles could be a big sales opportunity.
John Ballard | Mar 18, 2021
Will investors still buy as interest in gaming pulls back?
Will Healy | Mar 17, 2021
Despite its size, Tencent can continue to grow for years to come.
Lawrence Nga | Mar 16, 2021
EA is putting together a gold mine of top gaming franchises in the sports market.
John Ballard | Mar 15, 2021
Telecom Stocks AI Stocks S&P 500 Index How to Invest in ETFs “,”author”:”Keith Noonan”,”date_published”:null,”lead_image_url”:”https://g.foolcdn.com/misc-assets/logo%20217×217.jpg”,”dek”:null,”next_page_url”:null,”url”:”https://www.fool.com/investing/stock-market/market-sectors/communication/video-game-stocks/”,”domain”:”www.fool.com”,”excerpt”:”Learn how to profit by investing in the big business that is video games, which is taking over modern culture and re-defining recreation.”,”word_count”:1230,”direction”:”ltr”,”total_pages”:1,”rendered_pages”:1}
The COVID-19 Consoles Thriving in Lockdown
The coronavirus (COVID-19) pandemic has had significant negative effects across much of the global economy, but one of the standout successes has been the video game industry, able to provide immersive, engaging, at-home entertainment. Since lockdown measures were introduced, US video games sales have increased by between 30-70% year on year during the months of April to August1.
Many games released during lockdown have seen bumper returns. Animal Crossing: New Horizons met its lifetime sales forecasts in less than two weeks. Fall Guys has shot to the top of the PC charts (and stayed there), achieving phenomenal success.
Former gamers have rekindled their love for both the big franchise games e.g. Call of Duty and FIFA, as well as the nostalgic games from their younger days.
New gamers have been able to quickly access games content on mobile or online platforms.
Digital distribution has enabled the market to thrive during lockdown, as consumers haven’t had to worry about travelling to the shops to buy their newest game.
And now we have the much anticipated next generation of video game consoles launching in November.
In the US, the PS5 had more pre-orders in its first 12 hours of availability than the PS4 had in its first 12 weeks of availability. Similarly, Microsoft has reported record-breaking demand for its new consoles too.
PC gaming wasn’t left this trend either, with Nvidia's new RTX 3000 series graphics cards selling out within minutes of release.
As the stock of hardware that people are able to play games on increases, the more demand there will be for new exciting games for people to play. Cloud gaming services have the potential to push this trend even further, because as cloud gaming becomes more readily available, everybody with a smartphone or laptop will become the target audience of the latest major releases.
We expect the video games sector (excl. hardware) to grow at c. 6.5% p.a. over the next 5 years, racing to c.£140bn globally – see our Entertainment and Media Outlook for more details.
M&A in this space has reflected the rising usage. In the last year, there have been several large fundraising events e.g. Epic Games raising $1.78bn, Microsoft buying Bethesda Softwork’s parent company for $7.5bn, Scopely raising $340m and Roblox raising $150m.
In addition, financial sponsors who may have historically been sceptical of making investments in the video game industry (e.g.
with concerns about the “hit driven” nature of the sector) now appear more receptive given a range of factors which not only reduce that risk, but stimulate enthusiasm for investment.
During our work in the sector over the past five years, we have identified a number of industry characteristics and practices that video game companies have adopted which make the dynamics highly favourable for new investors.
Sequels to successful games, generally, perform successfully too. We analysed lifetime sales for a number of highly successful games with sequels, and found that on average the sales of the sequel exceeded those of the initial game. Through focusing on sequels, developers can reduce their risk as they are ly to attract those who enjoyed the previous game.
Leveraging the brands
IP from existing non-video game franchises can be used to develop new games. Using existing IP will ly incur a licencing cost, but will mean that there are a number of fans of the IP who might be attracted to try the game.
Balancing the mix of work
Many developers have increasingly sought a mix of “work-for-hire” projects (funded by the publisher, but typically receive no/ limited share of the game royalties), vs building their own games (at their own risk, but with owning the game royalties). This creates a more balanced financial position and reduces concentration risk with any one game.
Extending the game lifecycle
The games-as-a-service model allows the developer to continually create new content for fans of the game and keep them engaged for a much longer period of time, as compared with traditional release cycles. Use of data can augment performance further – by monitoring how people play a game, it is possible to identify features of the game that might improve player retention/ engagement.
Reliance on the service providers
Specialist game services – including development, testing, localisation, audio – are services which can cater to a wide range of platforms, games and partners. They can be agnostic to title or technology. With more games coming to market each year, and a proliferation of new platforms, the market drivers for this subsegment are especially attractive.
What happens once lockdown ends, and life returns to normal? We believe that while the extreme growth that was seen in the early parts of lockdown won’t continue indefinitely, it is ly that we will have “gone forward to normal”.
Data from Steam, the largest PC gaming platform, shows that while peak concurrent online users are down from 24.5m in April, as of September it was over 21.9m compared to 18.3m in January at the start of the year.
This signals that while the peak lockdown number of players has passed, many of those people have stuck around as lockdown measures have been eased.
COVID-19 has accelerated financial sponsor’s interest in the video game industry, with current trends demonstrating the sector is resilient to downturns, has significant headroom to grow, and can mitigate the risks from being tied to the success of one hit.
If you’d to talk more about the sector or have any questions, we’d love to hear from you.
1 gamesindustrybiz: increase of 73% in April, 52% in May, 20% in June, 32% in July and 37% in August.
Gaming Boom in COVID-19 times: Analysis & Insights
by Analytics Insight October 31, 2020
In an attempt to curb the spread of the novel coronavirus, several countries around the world restored to lockdowns in early 2020. These lockdowns meant confining millions of people to their homes, closure of businesses and imposing restrictions on various day-to-day activities.
The ceasing of almost all of the economic activity during the initial lockdowns has pushed the global economy into recession. According to the International Monetary Fund, the global economy is expected to shrink by over 3 per cent in 2020 – the steepest slowdown since the Great Depression of the 1930s.
Despite the widespread economic disruption caused by the coronavirus pandemic, the global video games industry is thriving. This is because, in the age of social distancing where consumer and business activities have reduced to a minimum, gaming has provided an engaging distraction for people seeking social interaction.
Here is an article that takes a look at how COVID-19 is boosting the growth of the global video games and esports industry.
The changing business model
The video games industry is tapping into global consumer demand for interactive, online entertainment, which has led to an unprecedented fan base and record-breaking revenues.
In 2020, the global video games industry is projected to reach $159b in revenues, which is almost three times the music industry revenues and around four times box office revenues.
The biggest market by revenue is Asia-Pacific with almost 50% of the games by value. The United Kingdom also accounts for a major portion of the revenue.
Gaming revenues are mostly driven by consumer spending, but the business model has evolved significantly over the past few years.
Earlier, video games were the traditional business model, known as “game as a product”, where game publishers developed a game and then sold it to the consumer for a single, revenue-generating fee.
After the consumer bought the game, the video game publisher had to develop another game or add-on to generate additional revenue from that consumer.
Nowadays, game publishers are embracing new business models the “game as a service” to maximize revenues. Here, instead of a one-time transaction, video games are monetized using various building mechanisms to keep users playing and paying for as long as possible. This leads to the expansion of a game’s lifespan into something more closely resembling a service.
COVID-19 has boosted engagement with video games
COVID-19 has made a dramatic increase in the audience available to publishers, and all the giants of the video games industry – including, Microsoft, Nintendo and Twitch – have thrived in the conditions created by the pandemic.
According to The Washington Post, the number of subscribers for Microsoft’s Game Pass service passed 10 million in April 2020. Among these subscribers, Microsoft reported a 130 per cent increase in multiplayer engagement across March and April.
Nintendo and Tencent also saw an increase in sales during their first quarter. The former experienced around 41% increase in profits, while Tencent’s year-on-year online games revenue increased by 31%.
Even games released during the pandemic have performed well, with titles such as Nintendo’s Animal Crossing: New Horizons and id Software’s Doom Eternal breaking records after launching.
In fact, Nintendo has sold more than 22 million copies of Animal Crossing: New Horizons since its release in late March.
The same is true of engagement numbers. Twitch, the most popular video streaming platform with 15 million daily active users and 3 million monthly creators, saw 3.1 billion hours watched in Q1 2020 – a 24% increase since Q4 2019.
Steam, a popular PC gaming platform, experienced its all-time high concurrent user count at over 20 million people in March. Overall, video games sales approached $1.
6 billion in the month of March, representing a 35% year over year increase, according to NDP.
The surge in online casino gaming and fantasy sports betting
Besides the video games industry, online casino gaming and fantasy sports betting have also experienced tremendous growth during the COVID-19 pandemic. This is because the brick-and-mortar gaming venues across the globe were closed to limit the spread of the virus. Also, all the major sporting events were postponed or cancelled for the same reason.
So, the majority of casino players and sports bettors shifted to online casino gaming and fantasy sports betting to quench their gambling needs. This crossover has seen a major boost in the user base of popular gambling sites in the United Kingdom.
The major online casinos have seen an increase of about 25% in people trying online slots, and it has increased by over 38% when it comes to playing poker.
Also, fantasy sports betting experienced a 30% increase during the first couple of months of the COVD-19 crisis.
The above-mentioned stats have been cross-verified with the data provided by major UK online casino operator TheOnlineCasino.co.uk, who have verified the same with some of their analytics data. We took an input from Aayush who is chief editor at TeenPatti.co.in an India based gambling information site and they confirm the same in the boom in Indian market in the COVID times.
The impact of COVID-19 on Esports
While video games and online casino gaming have experienced tremendous growth during the COVID-19 pandemic, the gaming industry is not completely immune to the virus.
Esports, which take the form of multiplayer game competitions, has been one of the first parts of the gaming industry to be affected. Most esports events around the world have either been cancelled or postponed, though some are taking place without audiences.
As most of the esports revenue comes from advertising and broadcasting, the esports side of the gaming industry has certainly experienced a downfall.
Despite this, esports may be growing in prominence as a result of the coronavirus crisis. This is because sports leagues across the globe have turned to the sector to find new ways of engaging with fans.
Also, several esports competitions are now being shown on live TV, as broadcasters look to fill hours of scheduled sports content that were cancelled.
So, even though esports revenue may have declined, the value of the sector has risen due to the low-cost marketing it has benefited from during the COVID-19 pandemic.
There are several takeaways from the recent surge in gaming that indicate the future transformations in the thriving industry. Let’s explore them in detail one by one.
Increased spending on mobile games
The greater interest in gaming may accelerate a shift towards the delivery of games via mobile. In fact, mobile gaming has already seen an increase in engagement and revenues as a result of the COVID-19 measures, and mobile games are estimated to generate a massive revenue of $77.2 billion in 2020, according to Newzoo.
There are a few reasons as to why mobile will experience more growth than both PC and console gaming. First, mobile gaming has the lowest barriers to entry – over 44.85% of the world’s population owns a smartphone and most mobile titles are free to play.
Next, the mobile development process is less complex and needs a smaller amount of investment as compared to the PC platform. Then there’s the convenience factor – un PC gaming, mobile players can easily play their favourite mobile games anywhere, anytime.
PC and console are still on a track for healthy growth
Although mobile gaming is all set to experience tremendous growth in the coming years, PC and console gaming aren’t going anywhere. Driven by its 1.3 billion players, PC gaming will grow +4.4% year on year to $36.9 billion in 2020, according to Newzoo. Meanwhile, console gaming will grow +6.8% year on year to $45.2 billion, boasting over 729 million players.
Engagement and revenues for console gaming are set to grow due to COVID-19 restrictions, but the pandemic is also having negative effects on it.
As you might know, things physical distribution and massive company collaboration are a major part of the console game development process, and they may result in game delays in the future. These delays will also have an impact on the games scheduled to accompany the launch of next-gen consoles.
That being said, the early launch on next-gen consoles and their associated content is essential for continued growth in the console gaming segment.
As for PC gaming, the growth can almost be fully attributed to the lockdown measures due to COVID-19. The reason for this is that un console gaming, new PC game releases rarely reach revenues that can significantly change the market’s outlook.
Many of PC’s most popular titles have been in their place for at least three years, with some retaining their popularity for over 10 years.
So, as it seems that the pandemic will not end anytime soon, PC gaming is ly to experience healthy growth, at least in the near future.
Cloud gaming has the potential to transform the video games industry
The video games industry is looking up to a future where the requirement for complex hardware will no longer be a necessity.
Cloud gaming is here and it’s going to change the way we look at video games, as the technology will allow players to access any high-end gaming title with just a basic machine.
All you need to have is a stable internet connection with a certain minimum bandwidth requirement.
The concept is catching up in developed nations the UK, where high-speed internet connectivity is a norm. It’s estimated that the global cloud gaming market will reach a market size of $3.17 billion by 2024, with the casual gamer making up a major chunk of it.
Given the situation where it may take a while for the pandemic to end, we can expect the video games industry to continue its upward growth trend. In short, the gaming community is looking at a post-pandemic gaming world with a steady flow of new titles and competitions.