Despite global economic setbacks in 2020 due to COVID-19, the gaming industry has seen significant revenue and profit growth. However, in a surprising move, the industry may be moving into uncharted territory with plans to include on-demand game rentals and subscription services using cloud systems.
The current crisis has complicated many lives, but the crisis certainly has its beneficiaries. There are plenty of companies increasing revenue from the current situation such as pharmaceutical companies, manufacturers of medical equipment and materials, food delivery services, streaming services, and, of course, gaming companies.
These companies have helped us to survive during the national lockdowns as we were able to order food from our favorite restaurants, watch new films in online theaters without the need to go to cinemas, take advantage of free time to play more video games.
Positive Market Response
Venturous investors successfully took advantage of the crisis supporting the aforementioned business sectors. The NASDAQ-100 stock market index of high-tech companies has grown by 35% from the beginning of the year. Innovators like Elon Musk, who became the second richest man in the world after Tesla hit a $500 billion market capitalization, definitely benefited. Meanwhile, Alibaba and Amazon reported record-breaking sales volumes on their online platforms. Even oil majors managed to compensate for their losses because prices have almost returned to their February 2020 values.
The situation in the global market is normalizing step by step. Pharmaceutical giants such as Pfizer, AstraZeneca, and Johnson & Johnson have reported the development and testing of highly effective vaccines. Therefore, we can hope to breathe without masks by spring or summer 2021.
Perhaps the most intriguing beneficiary of the COVID-19 situation is the gaming industry. As people started to spend more time at home, even the busiest amongst us have 30 minutes or more to kill zombies or play FIFA or Madden on their consoles, computers, or phones.
This article covers the current situation in the gaming industry and the prospects for the leading sector.
An Unexpected Future Direction of the Gaming Industry
For a long time, gaming analysts said that the future would be dominated by AR and VR — augmented and virtual realities. Maybe there is truth to it. Nevertheless, something completely different is trending currently — cloud gaming services.
Google, Nvidia, Microsoft, Sony, and many other companies already have working projects allowing you to launch state of art games even on old devices. You can rent a game with a per-minute charge or buy a subscription from a service, which is a revenue stream that proved effective on Apple and Netflix.
However, you may ask, “Won’t companies suffer from these services?” There is such a possibility. Therefore, IT giants do not actively promote gaming services, despite the fast development of the sector since 2013.
Taking into account the development rates of digital technologies, it is logical to assume that cloud gaming services can drastically reduce the sales volume of consoles for one thing, but streaming services, game development, and console manufacturing are controlled by the same companies who can select what sectors to promote.
Consequently, the gaming market may expand beyond this initial stage of development. Consumers have shown considerable interest in paying only a few dollars for a monthly subscription rather than a hefty sum for a console and its games. Nvidia and AMD may become great supporters of such liberalization of the cloud gaming services because these companies are the industry leaders of graphics processors.
In 2019, the video game market surpassed $191 billion in its volume with the actively growing mobile games sector. The share of mobile games reached 54% in comparison to 34% in 2015 when the sector was on the same level as PC games.
It is no surprise that mobile game development is gaining pace. Phones become smarter and faster and games for them get more attractive, interesting, and day by day gain more of our time and money. The popularity of mobile games translated into great advancement of their market sector in comparison with others.
The developers of PC games took trends into account and adapted many of their desktop franchises for App Store and Google Play including popular franchises like Grand Theft Auto, FIFA, and Diablo. The PC sector didn’t lose and actually generated new life for its games.
However, in 2020, people found themselves locked at home. Many were left with a lot of free time in comfortable surroundings. Consequently, they paid more attention to consoles that provide superior in-game control and state of art program solutions compared to mobile devices.
Newzoo’s analytics forecast the continuous market share growth of mobile games. They will account for 59% of the whole gaming market with the industry volume reaching $180 billion or +11% to the current values.
Taking this tendency into account, investors increasingly pay attention to the stocks of game developers and those of the manufacturers of consoles, game devices, graphics processors, and other valuable products for gamers.
Let’s take one of the oldest players in the industry, Japanese Nintendo, as an example. The stock growth of the company exceeds 25% since the beginning of the year. Moreover, Nintendo retains immense potential of growing Switch consoles sales in China with the active help from Tencent — a Chinese investment holding company. Also, this is only one of many reasons to pay close attention to Nintendo’s business.
In the first days of November, senior managers of Nintendo revealed its plan to sell 24 million game consoles in this financial year (by March 2021) and increase its operating revenue by 50% to reach $4.3 billion.
Meanwhile, Microsoft and Sony also didn’t lose time. In 2020, both companies presented their new consoles — Xbox Series, Xbox Series S, and PlayStation 5. Investment holding companies will hardly overlook this fact. The gaming industry successfully showed its best qualities — stability, profitability, and its potential for further growth and development. Therefore, billions of investments in the industry are secured.
Moreover, gaming companies have a significant advantage over others since they are famous. Nintendo, PlayStation, and Xbox are brands familiar to several generations of people. Tesla, for example, doesn’t boast such a reputation. Being well aware of the current changes, Apple launched its Arcade gaming service in 2019. Unfortunately, this project didn’t bring immense results despite its originality and a new approach.
Fortunately, these are all events of the past. These companies will undoubtedly continue to enlarge their market shares by launching new games, services, and consoles. Additionally, the cloud service rental and subscription innovations are an interesting direction in the development of the gaming industry that can completely change the rules of the market.
Creating an Investment Portfolio
The future active development of the gaming industry is beyond doubt due to several reasons. Firstly, the target audience is not limited by some age groups. Almost everybody plays video games — children, workers, students, retired people, business people. Secondly, the COVID-19 crisis has developed a habit to spend free time at home. Thirdly, the development of the gaming industry is led by major corporations that know what to do.
If you want to become a part of this industry and make a profit on it, your investment portfolio should include stocks of the major gaming related tech companies such as Nvidia, Microsoft, AMD, Intel, Amazon, Apple, Google, and Nintendo.