Is It Time to Take the Digital Games Sector Seriously?

If you have teenagers in your life (or teenagers-at-heart), perhaps you’re familiar with Horizon Zero Dawn – The Frozen Lands; Call of Duty: World War II; Destiny 2: Curse of Osiris; or any of the other recent gaming hits. While you may roll your eyes at the time and money kids invest in these simulated adventures, you might also consider getting in on the action with an investment in the companies that create these obsessions.

 

More than a game

The thing is, a game is no longer just a game. Research at the NPD Group indicates that Call of Duty is the second most valuable license in the US market (Batman is #1), with Mario Brothers, Minecraft and Pokéman all within the top 10.

The launch of a new video game or console can create a profitable spike for its producer, but it’s the in-game purchases, online downloads, monthly subscriptions and advertising revenue that keep the dollars streaming in over the long-term. According to NPD analyst Mat Piscatella, in November 2017, US video game spending across hardware, software and accessories jumped to $2.7 billion – an increase of 30% over last year.

 

Playing both sides

Currently leading the hardware game is the Nintendo Switch – a console that can be docked at home or unplugged for mobile play. Nintendo (TYO: 7974) also owns the Pokémon and Super Mario licenses, recently launching the hit Super Mario Odyssey. Meanwhile, in addition to producing Gran Turismo, Uncharted and Horizon Zero Dawn, Sony (SNE) is of course famous for its PlayStation hardware, including the PS4 Pro.

Microsoft (MSFT) holds the title for the priciest gaming console with the new Xbox One X. Despite a retail price of USD $500, Phil Spencer, Xbox leader at Microsoft told Business Insider, “…the hardware part of the console business is not the money-making part of the business. The money-making part is in selling games.”

 

The game-makers

  • Activision Blizzard (ATVI) – Headquartered in Santa Monica, this company is barely 10 years old and has achieved blue chip status with a position among the S&P 500. Call of Duty, Destiny, Skylanders, World of Warcraft, Guitar Hero and Candy Crush Saga are just a few of its famous franchises.
  • Electronic Arts (EA) – This 35-year-old company was founded by a former Apple employee in Redwood City and is behind some of the biggest sports gaming series such as FIFA, Madden NFL, Fight Night, NBA Live, NHL, as well as SimCity, Plants vs Zombies, and the Star Wars series, including the current bestseller – Star Wars Battlefront II.
  • Take-Two Interactive Software (TTWO) – Based in New York City and founded 24 years ago by Ryan Brant (son of media baron Peter Brant), this game company has published popular titles such as Grand Theft Auto; Civilization; and NBA 2K.
  • Ubisoft (UBI) – This French video game publisher is fourth-largest in the US and Europe, and claims some of the top cult favourite titles among serious gamers, such as Assassin’s Creed, Far Cry and Tom Clancy’s.
  • Tencent Games – The biggest games company in the world is a mere division of the massive Chinese media conglomerate Tencent Holdings (SEHK: 700). Its multiplayer games include King of Glory, League of Legends and the WeGame online platform.

 

Recently, The Financial Times declared that investors and analysts have begun “to embrace the long-term nature of games companies as their business becomes an established part of the global economic scenery.”  In other words, too legit to quit.

You’ve come a long way Frogger, baby.

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