Video gaming has been a popular hobby for over three decades. While early players had to make a special trip to an arcade gaming den for the opportunity to play Pacman and Pong, this quickly changed with the release of home computers and consoles.
Although there are conflicting reports, the gaming industry was worth around $151 billion at the end of 2019, and these figures are likely to increase by around 5-10% between 2020 and 2025.
New Consoles Are Coming Out Soon
2020 and 2021 will be bumper years for tech giants Sony and Microsoft. The companies are launching their latest generations of consoles at the end of the year, just in time for the holiday season.
Both are keeping tight-lipped about pricing for the time being, but we can guess they’ll both be aggressively priced to not give the other competitive advantage.
Sony has forecast sales of around 6 million units by the end of Q1 2021. Using the PlayStation 4’s launch price of $399, this would generate the company upwards of $2 billion in less than six months.
This will probably mean a slowing down of sales in the months leading up to the launch, but even the more growth afterward.
In anticipation of the launch of these consoles, Sony has seen its share price rise from ¥7,420 in January, to over ¥8,000 in mid-July. The same has happened for Microsoft, whose share price has risen from $160 at the start of 2020 to $213 on 10th July.
Mobile Gaming and Casual Titles
According to Compare Camp, mobile games now account for nearly 60% of the digitally distributed video games market. Mobile games generated around $64 billion of revenue in 2019, three times more than free-to-play PC titles, and almost five times more than revenue from downloads for consoles.
The demand for mobile games increased by 30% in the first few months of 2020, and by a whopping 150% in 2019.
Casual titles are an enormous part of this growth, with many older players not willing to fork out large sums upfront for a game. Most casual games are free-to-play and generate revenue from microtransactions instead.
The popular title, Candy Crush, is a superb example of this. It generates over $1 billion in revenue each year but is free for anyone that downloads and plays it. The publishers only make money when the player buys more lives.
Battle Royale and first-person shooter free-to-play games like Call of Duty: Mobile, which recently shot past the 250 million downloads mark, and PUBG Mobile are also enjoying strong growth in revenue using this model.
Growth in iGaming
The iGaming sector, which includes online casinos, poker rooms, sports betting, lotteries, and bingo, has also been enjoying vigorous growth. In Europe, where the market is mature, revenue continues to grow with earnings from casino gaming alone is expected to surpass €20 billion this year.
In the US, online sports betting and casinos are slowly being permitted in more states, providing fresh markets for companies to enter. One of these companies is 888, which has seen its stock price rise from £1.65 per share in January to £1.88 on 10th July.
The success of companies like 888 has not just come from offering online gaming services, but also providing education to new and experienced players to help them understand the games better. For example, 888 offers guides on hosting a casino night party as well as advanced tips for improving your strategy in the most popular casino games.
New Stock Market Bubble?
We have seen bubbles in the tech and gaming markets before. Most memorably was the dotcom bubble in the early 2000s, when investors got over-excited about new tech start-ups, throwing money at companies with no tangible business model.
The same happened to video gaming in the early 1980s. In a rush to get products to market, publishers and developers were launching poor-quality video games that made consumers lose interest in the medium. At the same time, demand for consoles and home computers increased by 100% between 1982 and 1983, however, supply was boosted by 150%, triggering a crash.
The video gaming industry is only just reaching the same (inflation-adjusted) figures that it reached a peak in the 1980s. Shares of many tech companies, Microsoft and Intel included, have either only just returned to their dotcom bubble highs, or are yet to fully recover.
Financial websites like Forbes and Inc. have been publishing articles that discuss the possibility that we’re in another tech bubble since at least 2019. While these articles mostly focus on tech unicorns like Uber, we can see the same trends in companies like Take-Two Interactive and Electronic Arts, two leading video game publishers.
This may not necessarily mean a bubble, though. If earnings have grown dramatically, which they have, then an increase in share price could be justified. One way to determine if a stock is overpriced is to look at its price to earnings (P/E) ratio.
The NASDAQ average is around 20-23, while Take-Two has a P/E ratio of 42.63, suggesting it may be overpriced. In contrast, Electrotonic Arts has a ratio of just 13.
The context of the wider market needs to be taken into consideration too, with most major indices seeing strong growth in June and July.
The video gaming industry is continuing to enjoy tremendous growth. It has seen downloads of mobile games more than double in 2019 and appears to be carrying this trend through 2020. These downloads are translating into increased revenue, with free-to-play games generating billions of dollars in revenue.
Console sales are set to spike in 2020 with the release of the next generation, and the iGaming industry is also enjoying healthy growth.
With all these developments, stock prices are rising dramatically too. Whether those prices are justified is for the market to decide, but given that some companies have sensible P/E ratios, it may suggest that the market is not in a bubble.