Ever since fans started making simple video games on the earliest computer hardware, video games have been fascinating to millions of people – in July 2021, it was reported that two-thirds of Americans played video games. But even with such a large number, you may be shocked to learn how big the video game market is and how profitable video game stocks are.
From 2011 to 2021, the U.S. video game market grew $ 38.6 to $ 85.9 billion – this is a total annual growth rate (CAGR) of 8.3%. Reach $ 6 billion in revenue in 2018 Interactive Take-Two (NASDAQ:TTWO) Grand Theft Auto V or is it the most successful piece of entertainment media of all time, but by no means the only game that can be made billions of dollars.
But like any such large industry, there are many companies looking for their own piece of the pie, and not all are the same. Let’s take a look at some of the key companies in the industry and then discuss some of the catalysts and risks of the video game industry.
Who makes money in video games?
In general, the video game industry can be divided into hardware manufacturers and publishers. Games can also be divided into console, PC (personal computer) and mobile games, each of which brings its own considerations. In addition, there are some related trends such as e-sports and video game streaming.
Key hardware manufacturers include companies such as Microsoft (NASDAQ:IFFT), Sony (NYSE:SONY) in Nintendo (OTCMKTS:NTDOY). They also include chip makers such as Nvidia (NASDAQ:NVDA) in AMD (NASDAQ:AMD). PC gamers rely on a mix of Nvidia and AMD graphics cards. Microsoft’s Xbox Series S and Series X and Sony PlayStation 5 use chips made by AMD, while the Nintendo Switch uses an Nvidia chip.
All three major console manufacturers also publish and develop their own titles, but many other companies are worth noting that they stick to just publishing. They are among the main publishers Activision Blizzard (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA), NetEase (NASDAQ:NTES), Roblox (NYSE:RBLX), Take two, Tencent (OTCMKTS:TCEHY), Ubisoft (OTCMKTS:UBSFY), Square Enix (OTCMKTS:SQNNY) in Bandai Namco (OTCMKTS:NCBDY).
On the PC side, two private companies offer large platforms for selling digital games. (Most total game sales are digital, but this fact is especially true for computer games where only 2% of revenues in 2020 comes from physical games). Valve offers games on the Steam and Epic games, in which Tencent has a 40% stake, manages the Epic Games Store. Although both companies are privately owned, they are worth paying attention to, as almost every other publisher sells games on their platforms.
Apple (NASDAQ:AAPL) in alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are the most important companies in the field of mobile games. While more powerful gaming is certainly a driving force for some consumers when choosing a phone, the revenue that iOS and Android platforms take away from the top of mobile game sales and in-app purchases makes both companies big players in space. In 2019, it’s Apple make more money by selling games like Microsoft, Sony, Nintendo and Activision Blizzard combined.
Amazon (NASDAQ:AMZN) is the largest name in streaming. His Twitch platform is home to most of the biggest names in live game broadcasts. They expected the esports and streaming to succeed $ 2.1 billion in 2021 and is expected to earn $ 3.5 billion in 2025. Playing the Super League (NASDAQ:SLGG), Allied Esports Entertainment (NASDAQ:AESE) in Skillz (NYSE:SKLZ) are among the companies that have tried to carve out a niche in sports. SLGG and AESE are penny stocks with market capitalizations below $ 100 million.
Balancing: key catalysts for video game stocks
The biggest catalyst for video game inventory in the last few years has been the Covid-19 pandemic; because people were forced to stay at home instead of socializing in person, video games made it possible to spend virtual time with others.
As I mentioned, Grand Theft Auto V is the most financially successful medium of all time, and 2020 has actually been the most successful year for the game since its 2013 release. Traditionally, games have generated the vast majority of their revenue in a window immediately after its release. This is one of the many games that the pandemic has benefited from.
Another factor that contributed to the success Grand Theft Auto V and many other games its status is a “Live service match.” Before every gaming console was connected to the Internet, most games rarely received updates. Extremely popular computer games could get an extension or two, but for most games, the game was all the game would ever have, a cartridge or a disc you bought.
This is no longer the case for most games. Updates and fixes mean that bugs can be fixed after launch, and more importantly, games can offer new paid and free content months or years after release. Games like Fortnite come with seasonal updates which bring new stories, changes to the maps in the game and, most importantly, new things to buy.
The games themselves, of course, aren’t the only things with regular new releases. As computer hardware has become more powerful, console manufacturers have released better consoles that offer new capabilities. As the cliché says, video games have come a long way since then Pac-Man.
New releases of consoles are divided into generations lasting about five to seven years, and we are currently in the ninth generation of video game consoles. Most major consoles in recent decades have included at least one hardware update between each generation, offering things like an updated design, improved performance, more storage space, and lower prices.
On the PC side, both AMD and Nvidia regularly release new, more powerful graphics hardware. Both companies produce several new levels of graphics cards each year with major architecture updates that typically occur every few years.
End of the game? Video game Stock Headwinds
The biggest risk for video game stocks is posed by gamers themselves. More than perhaps any other form of media, video game enthusiasts are usually seen as a cohort, meaning that a strong group identity based on a particular choice of hardware or software can lead to poor business performance.
For example, at the time of its release, the PlayStation 3 was generally considered to be overrated and had a poor title library (“PS3 has no games” has remained a popular way of humorously mocking the console for years). The launch PlayStation 4 he was comparatively much more successful and enjoyed significantly higher sales in his lifetime.
While the PS3 failed to attract customers, many gamers flocked to the Xbox 360, but the next, the Xbox One, landed with a comparative blow and did not reach the same heights as its predecessor. There are many reasons why certain consoles are successful and unsuccessful, but by far the biggest is the highly informed consumer base, which means that shortcomings have a tremendous impact on revenue.
Video game publishers are very prone to controversy, especially when it comes to dealing with workers. Activision Blizzard became a pariah overnight in 2021 when the California Department of Fair Employment and Housing filed a lawsuit against the company. Activision Blizzard’s culture has been described as creating “harassment medium and discrimination against women. “
Activision Blizzard (whose share fell sharply after the lawsuit) is barely the first video game company to find itself in controversy. Electronic Arts was high at the top of the scale the worst companies in America several times, taking home the dubious honor of no. 1 in 2012. Many large publishers have dealt with the cramp, the practice of forcing employees to work extremely long hours – sometimes 100 or more – meeting the deadlines for issuance.
In addition, many companies are laying off massively even after seemingly successful development cycles. In 2017, the International Game Developers Association found that they “found that game workers an average of 2.2 employers in the last five years. “
All of this is usually added to developers leave the industry after three to six years. In any other industry, talented professionals leaving so quickly would be a cause for alarm, and in the video game industry, this is normal.
Laying off employees who simply don’t quit after being forced to work 100 or more hours could be good for the range of immediate profits the industry thrives on, but should give a break to any potential investor who cares about long-term success. . A company such as Activision Blizzard’s alleged mistreatment of employees is profitable until it is.
Investing in video game stocks through video game ETFs
If you find the benefits of investing in video game stocks tempting enough to overcome the disadvantages, you may want to consider investing in an exchange-traded video game fund (ETF). ETFs allow investors to invest in a “basket” of stocks that are in some way related, and there are several that focus on video game stocks:
- VanEck Vectors Video Gaming in eSports ETF (NASDAQ:ESPO) has an expenditure coefficient of 0.55% and was established in October 2018.
- Global X Video Games & Esports ETF (NASDAQ:HERO) has an expenditure ratio of 0.5% and started in October 2019.
- Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSEARCA:NERD) has an expenditure ratio of 0.5% and started in December 2018.
- Wedbush ETFMG Video Game Tech ETF (NYSEARCA:GAMR) has an expenditure ratio of 0.75% and was established in March 2016.
Each ETF has its own ownership interests, which change over time, and each also has its own procedures for managing its assets. Although ETFs are designed to facilitate investment in a certain way without having to do all the work to identify the strengths and weaknesses of each individual company, by no means are all ETFs created the same.
The best stock video games to watch
Avril Ayers is the online editor for InvestorPlace.com. At the date of publication, they did not have any position (direct or indirect) in any of the securities mentioned in this article. The opinions expressed in this article are those of the author and are the subject of InvestorPlace.com Guidelines for publication.