With a growing fanbase, new consoles, and a rise in extracurricular e-sports, the gaming market is proving to be a profitable investment.
Feb. 7, 2020
With the gaming industry estimated to be worth $230 billion by 2022, the rise of this sector cannot be ignored on Wall Street. Take-Two Interactive (NASDAQ: TTWO) alone was one of the top-performing stocks of the past decade, up more than 1,200% since 2010.
With that in mind, here are 3 reasons that video games can make a profitable — and fun — investment.
1. New consoles in 2020
Though you may have only heard of the big names such as Microsoft’s (NASDAQ: MSFT) Xbox and Sony’s (NYSE: SNE) next-generation console releases scheduled for 2020, there is actually a whole lot more than just that.
The most recent generation of big-name consoles — PS4 and Xbox One — actually came out seven years ago, with several older competitors reemerging in that time such as Atari (EPA: ATA), Polymega, and Evercade. It is no surprise considering the global console games market was valued at about $26.81 billion in 2018 and is expected to grow to $31.49 billion at a CAGR of 4.1% through 2022.
Even Apple (NASDAQ: AAPL) has Apple Arcade which came out last September, while Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) released Google Stadia in November. Both are cloud-based game streaming platforms; completely uncharted territory for the tech giants who have yet to release figures on their performance.
Sony and Microsoft will be hoping to outdo their previous consoles with the launch of the PS5 and Xbox Series X this year. Last July, the PS4 overtook the original Playstation as the fourth-highest selling console of all time, currently sitting at 106 million units. Xbox, on the other hand, will be disappointed with selling less than half that number and will hope to do better this time around.
Sales will be expected to slow this year in anticipation of the release of new consoles. With gaming making up 9% if Microsoft’s revenue in 2018, and 27% of Sony’s total revenue in the same period. Investors will be watching the new launches with keen interest.
2. Growing user base
The video game industry actually surpassed the S&P 500 (NYSEARCA: VOO) in 2019 with returns of more than 40%, compared to 28%. In comparison, a more high profile sector like tech gained 47% in the same period, showing that gaming was not far off the market’s most lucrative sector.
Much of this growth can be attributed to the growing number of gamers around the world. The estimated number of people playing video games is expected to grow from 2.2 billion to 2.7 billion by 2021. 2018 was a record-breaking year for the industry in terms of game sales, which exceeded $43.4 billion. This was helped along by the release of fan-favorites such as ‘Red Dead Redemption 2’, which has sold more than 26 million copies worldwide.
SuperData Research estimated that the video game industry grew 4% in 2019, reaching $120.1 billion in global revenues, with free-to-play phenomenon Fortnite topping $1.8 billion, making it one of the year’s top performers.
3. The rise of esports
Even if you have never heard of esports before, it has certainly been growing rapidly. In 2018, esports viewership grew 13.8% to 380 million people worldwide. Esports analyst Newzoo expects this number to reach 557 million in 2021.
Revenue has also been matching this trajectory, with 2018 revenue growing more than 38% to $906 million. In 2019, it is estimated that revenue topped the $1 billion mark, in keeping with analysts forecasts that revenue will grow to $3.2 billion by 2022.
Sponsorship is playing a huge part in this growth, as companies such as Geico (NYSE: BRK) and Tinder (NASDAQ: MTCH) contributed in 2019 in order to market to a younger audience. What really gives esports its potential is its worldwide appeal. People from all around the world can watch esports online through Amazon’s (NASDAQ: AMZN) Twitch streaming platform.
Just last week, gaming giant Activision-Blizzard (NASDAQ: ATVI) announced a new partnership with Alphabet-owned YouTube that will see its popular esports league streamed exclusively on the site. The deal means that Activision will have access to YouTube’s billions of users, which also means more lucrative advertising deals. Esports advertising rose 18% in 2019, and this deal could see that growth shoots up in 2020.
It’s an exciting time to be a videogame investor, and with rising usage and new consoles on the way, 2020 could be the year of the console.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple, Microsoft, Google, and Take-Two Interactive. Read our full disclosure policy here.