In 2023, you would be hard-pressed to find someone who hadn’t at least played one video game. Thanks to the internet and other key technologies, the gaming market has expanded and diversified a great deal over the last few decades. A great example of this is the online casino space where many brands have created sites that are designed to cater to specific niches. To help them stand out in this space, many also offer a wide variety of different free bet bonuses, with many trying to outcompete their rivals in the size and terms of their promos.
But it’s not just iGaming where there is a great deal of popularity, every genre and category of video games have seen a rise in popularity over the last decade. The result is that around half of the entire population of the world now enjoys at least the occasional gaming session. When you look at the most advanced economies, such as the United States and United Kingdom, that rate increases to two-thirds.
So with so many people interested in playing games, you may be wondering whether the companies that develop, publish, and distribute this content could be an attractive investment.
What Makes a Good Investment?
Everyone is different, we all have our own tastes and preferences when it comes to just about every aspect of our lives. That is also true for investing. Some investors enjoy actively picking their own stocks by painstakingly researching companies, while others prefer a more hands-off approach.
In the same vein, we all sit somewhere on a diverse spectrum of risk. Some have very large appetites, willing to take higher likelihoods of losses in exchange for higher returns, while others can’t stomach the wild and volatile journey that a risk-tolerant philosophy would take you on.
However, there are some basic principles that remain the same no matter what. If you’re looking for a new investment, you want it to be profitable (or have a strong likelihood to be profitable in the future), have a competitive advantage, a loyal customer base, and room to grow.
So let’s examine the gaming industry against these metrics.
Competitive Advantage and Loyal Customer Base
One of the first places to look is whether companies within the gaming industry have managed to build a loyal customer base. In doing so, they can be fairly confident that they’ll be able to sell large volumes of their upcoming content.
Examples of companies like this include Rockstar Games and its Grand Theft Auto series, Epic Games’ Fortnite, and Activision’s Call of Duty.
A loyal customer base is one of the key competitive advantages that gaming companies can build. This is because, while a competitor could make a similar game, the loyalty of players will mean they’ll still buy new releases in the existing franchise. No more so is this evident than GTA, which has faced competition from games like Saint’s Row and Cyberpunk 2077. While these games are popular, they don’t come close to GTA.
Profitability
While profitability varies from year to year, with a whole host of factors influencing a gaming company’s bottom line, the reality is that most of the biggest publishers and development studios generate a healthy profit.
For example, Sony, which makes the largest share of its global profits from gaming, generated more than $20 billion by selling its consoles, games, and digital gaming services.
Depending on what you’re looking for from your investments, some gaming companies may look more attractive than others. Some, like Electronic Arts, are regular payers of dividends, while others like Take-Two choose to retain profits to reinvest.
Room to Grow
As any investment literature will tell you, past performance is not a guarantee of future success, so it’s important to look at whether gaming companies have room to grow their profitability in the future.
At present, this looks to be the case for most companies in the market. Free-to-play games like Fortnite and Candy Crush have shown that it’s possible to charge players for the ongoing enjoyment of games long after they’ve been first downloaded.
Microtransactions, even in games that aren’t free-to-play, continue to grow with Take-Two Interactive even reporting that they now generate more than half of their revenue from these recurring payments.
Beyond that, there is room to grow in the fact that, while the majority of us play games, there are still many that are yet to do so, giving gaming companies plenty of opportunities to sell even more.
