How big is the GAMING opportunity?

Investing in Entertainment:

I spend an enormous amount of time looking at consumer trends and one theme in particular is “entertainment”. As human beings we have to work but we LOVE to play & have fun. In many cases we work so we can play. In good times and bad, FUN & ENTERTAINMENT is a large part of our daily lives as well as our daily spend. As an investor, it’s impossible to ignore the potential investment opportunities that are currently available across the media, gaming and live entertainment categories.

First, let’s put video gaming into perspective with the above graphic. The revenues generated from the gaming industry are larger than the box office! Thats surprising until you really think about it. The box office revenue’s are shrinking as video streaming has taken over. Do you go to the movies less or more each year? I don’t know about you but the experience, save my visits to the local Cinepolis and their comfy leather chairs, has going nothing but down. Video gaming is a massive & global growth market.

I’m not a video gamer anymore but I have to say I’m impressed with the high quality animation inside these games today & intrigued to check them out. This isn’t Asteroids or Donkey Kong, I was addicted to those games and I’m not surprised that young people are chronic users of games today. It’s fun on an individual basis and it’s even more fun when you can play gamers from all over the world. I have no doubt that these video game companies will somehow find their way into feature films given the high quality animation and the global interest in the experience.

INVESTMENTING IN GAMING:

Gamers are a fickle bunch but when they go all-in on a game, it can be a monster revenue opportunity for the game makers and distributors. I could spend a lot of time going through each gaming company but for this post I’ll just list some facts and add some graphics to drive home the key point: Video gaming is NOT a fad, it’s here to stay and it’s a great investable theme for your portfolio. BONUS: Most of the gaming companies have been on mega-sale and appear to be getting back their mojo.

COMPANIES INVOLVED IN GAMING:

Microsoft (MSFT)- Maker of the XBox.

•  Xbox Live now has 64 million monthly active users across Xbox, Windows 10 and Smartphones.
• Quarterly gaming revenue for the quarter ending Dec 31st 2018 was up 8% YoY to $4.23 billion.
• Yearly revenue in 2018 was 11.5 billion dollars,up 23% YoY

Amazon (AMZN) – Amazon Game Studios is their business and Twitch is the platform.

• “Ninja”, has >12 million followers and makes an estimated $5 million per year for playing games!
• 15 million daily active users
• Over 240 billion minutes has been live streamed over Twitch

Google (GOOGL) – Wants to be the Netflix of Video Games with a new streaming service

• Creating a subscription service for video gaming using its cloud technology for fast streaming
• Also creating their own games for distribution
• Could revolutionize gaming and hurt the console makers given their service is all streaming, no software to buy at Best Buy, they will sell their own hand-held console.

Apple (AAPL) – Also getting into the gaming business but it’s still unclear what their strategy is

Ten-Cent (TCEHY) – The world’s most important gaming company

• China’s Ten-Cent had $19billion in gaming revenues in 2018
• League of Legends is still the biggest game in terms of monthly active users – Ten-Cent bought the creator Riot Games
• Fortnite, partially owned by Ten-Cent, has been played by >250million people. >$2.4billion in revenue generated in 2018

EA Sports (EA) – 3rd largest gaming company by revenues

• Apex Legends has gotten off to a faster start than Fortnite with >50million downloads in the first month of release.
• EA has an unbelievable amount of IP across all gaming categories and dominates sports with Madden, FIFA,etc.

Activision (ATVI)

• The largest pure gaming company by revenue in the U.S.
• E-Sports play = Overwatch league gaining momentum but still in inning 1 of the opportunity

Take-Two Interactive (TTWO)

• 60 game titles that have sold over 1 million copies
• The smallest of the top 3 U.S. gamers and likely the best acquisition target for bigger companies
• Top games-Red Dead Redemption, Grand Theft Auto, NBA2K

Netease (NTES) – A top 5 revenue gaming company in China – definitely worthy of more research – It’s not in my Brands Index but may make it in for 2020.

In Summary: Gaming, Audience and Innovation

Video gaming is only going to get bigger in terms of audiences and innovation. Roughly half of the U.S. population is either a Millennial or a Gen-Z, these are the gaming ages. China has more Millennials and Gen-Z than the entire population of the U.S.. Asia is by far the largest market for gaming companies. The addressable market is huge, the revenue opportunity is enormous and the market is big enough for many brands to succeed.