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The new reality of video games

25 February 2017 in Trading Ideas

Playing video games isn’t just for teenagers anymore. The average age of people that play video games is 35 and an estimated 63 percent of U.S. households have at least one person who plays video games regularly (3 hours or more per week), according to the Entertainment Software Association.

This has made the video game industry big business, generating $99 billion in revenues in 2016, up 8.5% from 2015. With mobile gaming expected to be a $100 billion global business by 2017 and overall gaming revenue spiking in the U.S., investors might want to consider investing in the video game industry.

Game Creators

Investing in game creators is one sure way to invest in gaming. Activision is one of the largest video game companies and posted a strong quarter at the end of 2016, with a 112 percent rise in sales and 315 percent rise in earnings per share year over year. Its Overwatch game, released last May, had more than 7 million players its first week after launch. Activision is also very active in mobile games, purchasing King Digital, the creator of Candy Crush, last May.

Activision’s largest competitor, Electronic Arts (EA), is another video game company to watch. The company has done well recently, especially with its recent Star Wars Battlefront series. While EA sales aren’t as high as Activision’s sales, the company is well established in the gaming industry.

Both EA and Activision are pushing to make inroads in China, where video game sales are booming. The Chinese internet gaming company NetEase is another video game company to watch. It offers online gaming packs, as well as online services such as email and advertising. The company also partners with Activision to distribute games throughout China. Another Chinese gaming company to watch is Tencent, which acquired the popular Riot Games in 2015. Riot Games had had some big mobile game hits including Blitzcrank’s Poro Roundup.

Virtually and Augmented Reality could be the Next Big Thing in Gaming

Virtual Reality (VR) and Augmented Reality (AR) gaming are expected to be big in the near future. Nearly 60 percent of the most frequent gamers who are familiar with VR intend to play video games on VR, according to the Entertainment Software Association.

Some studies estimate VR/AR gaming will generate $10 billion in revenue by 2020. The three big console game companies – Sony, Microsoft and Nintendo – are all making bets that the future of video games will include some form of virtual reality (VR). Microsoft’s HoloLens can project the popular 3D Minecraft game on table tops. Meanwhile Sony’s gaming segment, which now makes up more than 20 percent of the company’s revenue, last year launched its VR system that is used in conjunction with its Playstation 4 console.

Facebook is also positioned to be a big player in VR gaming with its popular Oculus Rift VR headset. Facebook has a massive user base and numerous online games people play through its online platform. Yet since Facebook is a massive company, it’s online gaming revenue might not make a huge impact on the company’s overall profits.

Keeping an eye out for augmented reality gaming can also be a good thing, especially since Pokemon Go, launched last July, is worth about $3.65 billion. The game was created by the Alphabet spinoff Niantic and generates a graphic overlay over real imagery, allowing people to explore an augmented version of reality.

The Power Behind Games are in the Chips

Another growth area in the gaming industry is with chipmakers, who produce incredibly powerful chips that process the massive amount of graphics, sounds and action in a game. One of the best companies to bet on for chips in the gaming market is NVIDIA, a pioneer in chips that power the games for nearly every major gaming company. Last year, NVIDIA stock gained more than 150 percent. NVIDIA also produces chips for other high-powered applications.

Mobile Gaming

Last year, mobile gaming become more popular than PC gaming for the first time, with revenues of $36.9 billion, up 21.3 percent globally. Clash of Clans, Angry Birds, FarmVille, and Candy Crush have been big hits on phones. Yet once public, some of these mobile gaming companies have had mixed results. Glu Mobile and Zynga haven’t done well as publicly traded companies. However, King Digital was recently taken over by Activision Blizzard in a deal valued at $5.9 billion. Still, mobile gaming is one area to watch.