Do Gaming Industry Stocks Present a Good Opportunity for Investors?

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Market trends make winners and losers and the last 12 months have been no exception. Many businesses in the leisure industry have struggled, while tech stocks and online retailers have broken record after record.

One of the biggest winners from the last year has been the gaming industry. It’s a sector that’s rising high after several years of unabated growth and there are few signs that its current trajectory is going to change.

For those investors that are yet to purchase stocks in gaming companies, is there much opportunity for share prices to level up further or have they already set an unbeatable high score?

 

Where Are We Now?

The gaming industry has changed a lot over the last decade. In the early 2010s, publishers were struggling to find a way to pay for the increased costs of developing games while not alienating their customers.

Failed attempts to charge for access to online games like Ubisoft’s Uplay Passport were replaced with downloadable content (DLC) that players could pay extra for. More recently, publishers have begun offering more of their titles for free and focused solely on these “microtransactions”.

The success of this new business model has resulted in most major publishers, including Electronic Arts and Take-Two, declaring in their financial reports that they now make around half of their total revenue this way.

Simultaneously, the iGaming industry, which covers online casinos, sports betting, and other forms of wagering, has been booming. Consumers in Europe continue to move more of their betting online leading to continued growth in that region.

Over in the USA, states are gradually legalizing sports betting and online casino games with around 20 currently permitting the activities within their borders. This is opening up consumers in the nation with the highest rate of household disposable income per capita in the world to this new form of entertainment for the first time.

As a result, sports betting in Pennsylvania and other states has been setting record after record as more and more Americans get involved.

Off the back of all this growth, gaming company share prices are riding high. As of mid-May 2021, Sony is trading at 10,300 JPY, nearly double where it was a year ago and around three times higher than in 2016. Microsoft Stock has climbed steeply in the last couple of years, from $55 in 2016 to nearly $250 in 2021.

 

Can Growth Continue?

Anyone old enough to remember the 1980s may be drawing comparisons to the Video Game Crash of 1983. This was a time when the market was flooded with poor quality hardware and games as companies tried to capitalize on the new industry. However, consumers quickly wised up to the fact that most games were bad and stopped buying them, bursting the economic bubble.

In 2021, things are materially different. Companies are selling much higher quality content and gamers can’t seem to get enough of it. The problem that publishers had in the early 2010s has all but gone away and spending keeps going up.

We’re beginning to see more consolidation in the industry as larger publishers and developers begin to swallow up smaller businesses. For EA, this has allowed them to secure ownership of major sports games like Codemasters’ Formula 1 and Metalhead Software’s Super Mega Baseball.

For the short term at least, it does seem that there is more room for the gaming industry to grow, though investors should always be aware that there will be an expiry date on this trend and each day is a step closer to it.

 

Are Gaming Companies a Good Investment?

Of course, investments can always go up and down, so there is no guarantee when buying shares in companies, but many pundits and commentators are suggesting gaming companies as investments. Several of the biggest publishers are paying sizable dividends. The Motley Fool has been recommending that investors consider Activision Blizzard and Electronic Arts for some time thanks to them being market leaders, sharing profits with investors, and having prospects to deliver above-average returns.

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