Bullish on the Gaming Industry

In 2017, we have already seen many startups and new market companies come to fruition through IPO’s. The year as whole has seen pretty robust growth with the S&P 500 up over ten percent already this year. But instead of looking for the next big startup or IPO, let’s take a look at a sector where well-established and new companies are going absolutely gang busters…

The video game sector has never been more hot with significant gains witnessed by industry leader Activision Blizzard, which has almost doubled its stock price since January. Electronic Arts, or “EA” – the marker of the popular games FIFA, Madden and Battlefield – is up around 50 percent since the first of the year; and equally eye-popping is Take-Two Interactive – the markers of arguably the most popular video game franchise Grand Theft Auto – which is up close to double since the winter. So why the huge jump?

The answer can be found in online competitive gaming, digital downloads, add-ons and subscriptions. The days of the single revenue stream coming from the wrapped disc purchased in-store still exists but the disc now serves as the gateway to much more. Along with the game purchase comes with the potential for customer to purchase online yearly subscriptions and gaming upgrades. The gateway approach is making the industry as whole more profitable than ever.

Also, an intriguing and emerging revenue stream is the growth in popularity among e-sports leagues. The League of Legend finals draws viewers in the tens of millions combined with lucrative sponsorships and prize money in the millions. The stigma attached to gaming also seems to be eroding as evidenced by the New England Patriots owner Robert Kraft’s recent $20 million purchase of an on-line club within the newly formed “Overwatch League.” A league that so far has seven e-sports clubs based in New York, Boston, Miami, Shanghai, Seoul and Los Angles. With all this big money and big-time athletes getting in on the action, it’s no wonder that the video gaming industry is a hotbed of profits. If NFL owners are willingly to pour in millions of dollars for a franchise that plays your video game, which in this case includes “Overwatch,” well then… you can bet that the industry will only solidify through greater exposure, popularity, endurance and profitability. With stocks already posting significant gains this year, I see no reason for a short and long-term investor to seriously consider adding a solid gaming industry stock to their portfolio.

 

7 thoughts on “Bullish on the Gaming Industry

  1. Great topic! This has been a booming industry that has continues to grow. Other than the leagues and video game creators, are there any ancillary businesses to watch out for? Or companies that have been investing heavily into this space other than Activision ?

    • As for ancillary companies, the one that continually comes to mind is Twitch. Here is the link to their website: https://www.twitch.tv Twitch, live streams popular video game players/celebrities and a vast amount of video game tournaments. While inherent risk always lies within the video game creators (similar to fashion or retail their franchises can simply fall out of popularity) Twitch seems to have a completely different model in which they aren’t subjected to this. For example, if the current popular game Fornite becomes a thing of the past Epic Games maybe struggle to replace their primary franchise/money maker, while all Twitch has to do is shift it’s live streaming focus to another popular game/platform. As for investing in Twitch, they are owned by Twitch Interactive which is subsidiary of Amazon.

      As for numbers, Twitch most recently published a report highlighting 2.3 million monthly broadcasters, 15 million daily active users and 27,000 partner channels. In 2015, the company broke the barrier of 100 million users per month.

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