Gaming has never been as popular as it is today. Players have more choice than ever before, thanks to an increasingly diverse marketplace. A great example of this is the online casino space where there are hundreds of different brands for players to choose from. It is so vast, in fact, that sites like oddschecker have moved to help players navigate it by comparing the bonuses and promotions that each online casino offers.
The same is true for other types of video games. Many titles are available on multiple different platforms, giving players the option to choose which one (or ones) they play on. For example, fans of the battle royale hit Fortnite can play from their smartphone, tablet, computer, or console. Meanwhile, versions of the casual games Fruit Ninja and Angry Birds can also be enjoyed on VR headsets like the Meta Quest 2.
With that in mind, if you’re reading this, there is a good chance that you play games already - at least occasionally. This is especially true if you live in a major developed economy like the US or UK as adoption rates can be as high as two-thirds to three-quarters of the population.
But enjoying something as a consumer doesn’t necessarily make it a good investment. However, it can give you some insight into the market and the participants within it that you can use to make the decision to add a company (or companies) to your portfolio.
So, let’s take a look at whether now is a good time to invest in the gaming sector.
A Growing Market
One factor that can make the gaming industry attractive to prospective investors is the fact that it continues to grow. Recent estimates by PwC suggest that it could go from annual revenues of $235.7 billion in 2022 to $321.1 billion in 2026. That’s a compound annual growth rate of just over 8%; higher than what we see in other tech-related markets.
What makes this even more impressive is the fact that gaming revenues already eclipse other forms of entertainment. For example, before 2020, the combined global box office and home entertainment revenue was just under $140 billion - a fraction of gaming revenues.
This growth is being driven by several factors; some are short-term while others are more systemic. The biggest factor of all that’s driving the growth of the gaming industry is a shift in demographics.
While more older people are taking up the hobby, it is still a predominantly young person’s pursuit. However, as these young adults grow older, they generally retain their passion for gaming.
The natural replacement of the demographics will make a much bigger market for companies selling gaming-related products and services.
Increasing and Consistent Profitability
As the saying goes, “revenue is vanity, profit is sanity”. So while revenues are growing, this isn’t enough on its own to convince investors to buy in. However, the gaming industry does not rest on its vanity alone; it is, for the most part, a very profitable market.
For example, Electronic Arts enjoys sizable EBITA and has returned to the consistent growth we saw before interruptions in 2020. As of late 2022, EA made $1.615 billion, 31.62% more than it did in 2021.
Similarly, Take-Two Interactive has maintained significant levels of profitability that are consistent with or higher than the years immediately after the release of GTA V. Before that, the company’s financials were cyclical, spiking in years of major releases and dropping back down in years when it was developing the next release. For example, its EBITA rose by 468.12% in Q4 2013, the period GTA V went on sale, but then dropped for several years after.
Much of this consistency and growth comes from the fact that gaming companies now have business models that allow them to generate income from services rather than periodic releases of big titles.
It shows that the industry has managed to create a much more sustainable model that provides the consistency that many investors look for when choosing to invest in stocks.